Does Central Bank Independence Increase Inequality?
Since the 1980s, income inequality has increased substantially in several countries. Yet the political logic that triggered rising inequality in some places but not in others remains poorly understood. This paper builds a theory that links central...
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/422091611242015974/Does-Central-Bank-Independence-Increase-Inequality http://hdl.handle.net/10986/35069 |
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okr-10986-350692022-09-20T00:09:35Z Does Central Bank Independence Increase Inequality? Aklin, Michael Kern, Andreas Negre, Mario INEQUALITY CENTRAL BANK LABOR MARKET POVERTY FISCAL POLICY INCOME DISTRIBUTION FINANCIAL DEREGULATION MONETARY POLICY WAGES Since the 1980s, income inequality has increased substantially in several countries. Yet the political logic that triggered rising inequality in some places but not in others remains poorly understood. This paper builds a theory that links central bank independence to these dynamics. It posits the existence of three mechanisms that tie central bank independence to inequality. First, central bank independence indirectly constrains fiscal policy and weakens a government's ability to engage in redistribution. Second, central bank independence incentivizes governments to deregulate financial markets, which generates a boom in asset values. These assets are predominantly in the hands of wealthier segments of the population. Third, to contain inflationary pressures, governments actively promote policies that weaken the bargaining power of workers. Together, these policies strengthen secular trends towards higher inequality according to standard indicators. Empirically, the analysis finds a strong relation between central bank independence and inequality, as well as support for each of the mechanisms. From a policy perspective, our findings contribute to knowledge on the undesirable side effects of central bank independence. 2021-01-28T15:28:09Z 2021-01-28T15:28:09Z 2021-01 Working Paper http://documents.worldbank.org/curated/en/422091611242015974/Does-Central-Bank-Independence-Increase-Inequality http://hdl.handle.net/10986/35069 English Policy Research Working Paper;No. 9522 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
INEQUALITY CENTRAL BANK LABOR MARKET POVERTY FISCAL POLICY INCOME DISTRIBUTION FINANCIAL DEREGULATION MONETARY POLICY WAGES |
| spellingShingle |
INEQUALITY CENTRAL BANK LABOR MARKET POVERTY FISCAL POLICY INCOME DISTRIBUTION FINANCIAL DEREGULATION MONETARY POLICY WAGES Aklin, Michael Kern, Andreas Negre, Mario Does Central Bank Independence Increase Inequality? |
| relation |
Policy Research Working Paper;No. 9522 |
| description |
Since the 1980s, income inequality has
increased substantially in several countries. Yet the
political logic that triggered rising inequality in some
places but not in others remains poorly understood. This
paper builds a theory that links central bank independence
to these dynamics. It posits the existence of three
mechanisms that tie central bank independence to inequality.
First, central bank independence indirectly constrains
fiscal policy and weakens a government's ability to
engage in redistribution. Second, central bank independence
incentivizes governments to deregulate financial markets,
which generates a boom in asset values. These assets are
predominantly in the hands of wealthier segments of the
population. Third, to contain inflationary pressures,
governments actively promote policies that weaken the
bargaining power of workers. Together, these policies
strengthen secular trends towards higher inequality
according to standard indicators. Empirically, the analysis
finds a strong relation between central bank independence
and inequality, as well as support for each of the
mechanisms. From a policy perspective, our findings
contribute to knowledge on the undesirable side effects of
central bank independence. |
| format |
Working Paper |
| author |
Aklin, Michael Kern, Andreas Negre, Mario |
| author_facet |
Aklin, Michael Kern, Andreas Negre, Mario |
| author_sort |
Aklin, Michael |
| title |
Does Central Bank Independence Increase Inequality? |
| title_short |
Does Central Bank Independence Increase Inequality? |
| title_full |
Does Central Bank Independence Increase Inequality? |
| title_fullStr |
Does Central Bank Independence Increase Inequality? |
| title_full_unstemmed |
Does Central Bank Independence Increase Inequality? |
| title_sort |
does central bank independence increase inequality? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2021 |
| url |
http://documents.worldbank.org/curated/en/422091611242015974/Does-Central-Bank-Independence-Increase-Inequality http://hdl.handle.net/10986/35069 |
| _version_ |
1764482254622425088 |