Empirical Insights on Inflation, Financial Development and Income Inequality in Central and Eastern European Countries

Given the recent debates on high inflation and widening income inequality in the post-pandemic period, this paper examines the empirical relationship between inflation, financial development, and income inequality in Central and Eastern European (CEE) countries in the period 2004-2022 using advanced panel data models to account for potential endogeneity, long-run and short-run patterns. The findings suggest that inflation has a positive impact on income inequality. Financial development exhibits a negative association with income inequality in the long-run and its interaction with inflation reduces income inequality. This suggests that a more developed financial system can help to reduce income inequality by facilitating access to credit and financial services for all segments of the population.