The microfoundation of macroeconomic populism: The effects of economic inequality on public inflation aversion

Previous work on the politics of monetary policy has focused on the role of distributive motives stemming from individual characteristics such as income or factoral/sectoral interests in citizens' formation of monetary policy preferences. However, the existing literature has paid little attention to how a country's overall distributive context, namely, its level of economic inequality, affects citizens' preferences vis-à-vis price stability and employment. This article argues that as inequality pushes more citizens below a society's average income, there is more demand for redistribution through higher employment and increased fiscal spending, each of which can be better supported by expansionary monetary policy. This means that inequality makes citizens more tolerant of inflation. This study uses the International Social Survey Program, the Integrated Values Surveys, and the Comparative Study of Electoral Systems, which together include 293,100 respondents from 53 countries between the years 1976 and 2016 to demonstrate that overall, inequality significantly moderates citizens' inflation aversion.