James Dolmas

Inequality, inflation, and central bank independence

What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality.

An Exploration Into the Effects of Dynamic Economic Stabilization

This paper analyzes the stochastic properties of a dynamic general equilibrium model under two government policies which might be interpreted as ‘countercyclical’ fiscal policies. In one case, we examine the effects on fluctuations of government spending on infrastructure investment in an economy in which public capital is an input to the aggregate production function. In the other, we examine the effects on aggregate business cycle fluctuations of a proportional tax on lay-offs. Our results find only weak evidence for the stabilizing effects of either policy.

Majority Voting: A Quantitative Investigation

We study the tax systems that arise in a once-and-for-all majority voting equilibrium embedded within a macroeconomic model of inequality. We find that majority voting delivers (i) a small set of outcomes, (ii) zero labor income taxation, and (iii) nearly zero transfers. We find that majority voting, contrary to the literature developed in models without idiosyncratic risk, is quite powerful at restricting outcomes; however, it also delivers predictions inconsistent with observed tax systems.