Asymmetric Effects of Inflation on Income Inequality: Evidence from Threshold Models in Turkiye

Résumé

The main objective of this study is to analyze the asymmetric effects of highly volatile inflation on income inequality in Türkiye between 1990 and 2023. Despite its high growth potential, Türkiye has a fragile economic structure and experienced a period of highly volatile inflation during the specified period. Such volatility may lead to imbalances in income distribution. Empirical studies specifically focusing on the asymmetric effects of inflation on income inequality in Türkiye remain limited. This study seeks to address this gap in the literature. Threshold regression and threshold Structural Vector Autoregression (SVAR) models are employed as suitable methodologies to investigate the relationship between inflation and income inequality. The Bai-Perron (1998) method is employed to determine threshold values, enabling inflation rates to be classified as either low or high, based on the period within the study's scope. The findings reveal a U-shaped relationship between inflation and income inequality, indicating that while low inflation reduces inequality, high and unstable inflation increases it. The study also examines the effects of human capital and economic growth by utilising various additional variables. It provides general implications and recommendations based on the findings.