Can central bank independence contribute to inequality?
Yes, argue Aklin et al. because:
- Central bank independence (CBI) indirectly constrains fiscal policy and weakens a government’s ability to engage in redistribution;
- CBI 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;
- To contain inflationary pressures, governments actively promote policies that weaken the bargaining power of workers.
They test empirically the above hypotheses using a panel dataset covering up to 121 countries from 1980 to 2013. They find evidence in support of their hypothesis that CBI increases inequality. An increase of CBI by one standard deviation leads, ceteris paribus, to a decline in the share of income of all income groups up to the 6th decile. The share of income earned by the bottom decile declines by 0.3 percentage points. CBI, on the other hand, has a considerable positive effect on the income share of the 80%-90% and the top decile. The latter saw its share of income increase by more than 1 percentage point.
Does Central Bank Independence Increase Inequality?
Authors: Michaël Aklin, Andreas Kern, Mario Negre
From: World Bank
A literature review on CBI and it effect on the economy
In this paper Masciandaro et al. looked at 73 peer-reviewed papers, published from 1980 to 2020, which analyze the effects of CBI on inflation, the real-economy, and financial variables. They organized their results on the graphs below:
Central Bank Independence: Metrics and Empirics
Authors: Donato Masciandaro, Jacopo Magurno, Romano Tarsia
From: Bocconi University
