Inequality and inflation relationship in middle-income countries

This research investigates the connection between inflation and inequality in 44 middle-income countries between 1996 and 2017. Our main objective is to determine whether a non-linear relationship exists between these two variables by utilizing a quadratic function and various estimation models and approaches found in existing literature. Our findings reveal an inverse U-shaped relationship where inflation initially leads to higher inequality, reaches a turning point, and then leads to lower inequality. We have also calculated the turning points under different scenarios and analyzed the relationship between inflation and inequality for countries with varying initial inflation and income levels. Finally, we have examined the effectiveness of tax policies in reducing the negative effects of inflation on income inequality during the study period.