New UTSA study delves into income inequality and inflation
(March 6, 2017) --A new study by Edgar Ghossoub, associate professor of economics at The University of Texas at San Antonio, posits that income inequality, in varying economies, can have substantial positive and negative effects for people in all walks of life depending on what kind of financial system they live under.
Income inequality became a wide public issue after the 2008 financial crisis, which was followed in later years by the Occupy movement. Protesters were especially frustrated with the massive gap in wealth between the millionaires and billionaires of Wall Street and the average American citizen.
"Typically, we have different income groups," Ghossoub said. "The low-income groups hold mainly assets like cash, which comes from their salaries, whereas the richer groups have more money to invest in many different assets."
Ghossoub studied financial systems all over the world to understand the relationship between income inequality and inflation, which is the rising or falling value of money. He found that as a system grows and develops, income inequality tends to rise because people are becoming wealthier while many are remaining poor. However, the size of the country's stock market is also a major factor.
"An economy with a large, active stock market leads to less income inequality compared to one with a smaller stock market," Ghossoub said. "A stock market promotes capital formation, which leads to higher wages and a healthier economy."
Still, the rich benefit from the strength of the stock market as the poor continue to rely solely on their own income, which could be significantly weakened with rising inflation, because their money is worth less. In countries like Mexico, with a smaller stock market but higher inflation, income inequality has a more damaging effect on the populace.
"Normally we associate income inequality with poverty," Ghossoub said. "There's always this feeling of unfairness. If you're rich, you have the resources to defend your interests, but the poor are left behind. If income inequality becomes a larger problem, it can lead to social unrest."
He notes, however, that as long as a nation's economy is moving forward, positive effects will follow.
"Central banks should focus on stabilizing prices to mitigate the effects of financial development on income inequality. When we have financial development, everyone is going to benefit," Ghossoub said. "Some people are always going to benefit more, but as the economy advances the welfare of everyone is going to rise."
Read Edgar Ghossoub's study, "Financial Development, Income Inequality, and the Redistributive Effects of Monetary Policy."
Learn more about the UTSA Department of Economics.
Come celebrate the doctoral students graduating this commencement season.H-E-B Student Union Ballrooms, UTSA Main Campus
Celebrate the accomplishments of the graduates of the College for Health, Community and Policy, College of Liberal and Fine Arts and College of Sciences.Alamodome, 100 Montana St, San Antonio, TX 78203
Celebrate the accomplishments of the graduates of the Carlos Alvarez College of Business, College of Education and Human Development, Margie and Bill Klesse College of Engineering and Integrated Design and University College.Alamodome, 100 Montana St, San Antonio, TX 78203
First Friday Stargazing gives anyone free access to the night sky using university telescopes and teaching equipment. Weather permitting, experienced astronomers will provide a handful of telescopes of varying designs, give training on how each operates, and point to various astronomical objects that may appear in the sky for that given time of the year. If you have a telescope and do not know how to operate it, feel free to bring it and get instructions on its use.4th Floor of Flawn Science Building, Main Campus