Fair Money
Is Inequality a Side Effect of Central Bank Independence?
Michaël Aklin, Andreas Kern & Mario Negre
Journal of Politics, forthcoming
Abstract:
Since the 1980s, income inequality has increased substantially in several countries. This paper builds a theory that links these dynamics to central bank independence. We posit the existence of three mechanisms that indirectly tie central bank independence to inequality. First, central bank independence incentivizes governments to deregulate financial markets, which generates a boom in asset values and increases non-wage returns. Second, to contain unemployment, governments actively promote policies that weaken the bargaining power of workers. Third, central bank independence constrains fiscal policy and weakens a government's ability to engage in redistribution. Together, these policies strengthen secular trends towards higher within-country inequality. Empirically, the analysis finds a strong relation between central bank independence and inequality, as well as varying degrees of support for each of the three mechanisms. From a policy perspective, we are not claiming that central bank independence (CBI) causes inequality. Instead, inequality reflects the political responses to CBI.
Anatomy of US Inequality
Oded Galor & Daniel Wainstock
NBER Working Paper, December 2025
Abstract:
Is income inequality in the United States primarily driven by disparities between ethnic groups or within them? The evidence reveals a striking pattern: 96% of U.S. income inequality arises from variation within groups sharing common ancestral origins, far overshadowing the comparatively small share attributable to differences between these groups. This pattern remains remarkably stable across time and regions.
What role for “generational wealth” in explaining racial wealth disparities?
John Sabelhaus & Jeffrey Thompson
Economic Inquiry, forthcoming
Abstract:
In light of recent interest in “generational wealth” and its potential to close racial disparities in wealth, this paper revisits an older literature with updated and improved data and methods. Relative to past research, this paper uses more recent data (through 2019) that includes a wider range of retirement assets and recovers intergenerational transfers not reflected in prior research. Despite these innovations, our findings are consistent with earlier research that intergenerational transfers can account for a relatively small share of the racial disparities in wealth that we observe in the data.
Winners and Losers: Competition, Creative Destruction, and Labor Income Risk
Brice Green et al.
MIT Working Paper, December 2025
Abstract:
Using U.S. administrative data, we find that technology-driven creative destruction in the product market passes through to worker earnings. The passthrough to incumbent worker earnings is both asymmetric and concentrated: profit drops from rival innovations lead to proportionally greater earning declines and changes in the likelihood of job destruction than profit gains from their own firm's innovations, while top workers are significantly more exposed than the average worker. We develop an endogenous-growth model with monopsonistic labor markets and worker heterogeneity that replicates this asymmetry and the distribution of earnings risk. Creative destruction exposes high-income workers to concentrated downside risk while offering lower-income workers upward mobility, shaping the welfare consequences of innovation policy.
Bismarckian welfare revisited: Fear of being violently dispossessed motivates support for redistribution
Daniel Sznycer
Evolution and Human Behavior, November 2025
Abstract:
Resource transfers among individuals can be driven by selfish, altruistic, competitive, or prudential motives. Here, we focus on prudence, specifically the propitiation of aggressive individuals or coalitions to avoid injurious loss. Across the animal kingdom, choosing to cede a resource to a stronger or needier individual is often more advantageous than losing the resource while also being harmed in the process. If the modern human skull houses a Stone Age mind, this ancient motive — though perhaps irrelevant in modern societies with legal enforcement of property rights — might still be at work. In domestic politics, the game-theoretic logic of appeasement is encapsulated in the quip, “If there is to be revolution, we would rather make it than suffer it,” attributed to Otto von Bismarck, the father of the modern welfare state. Are people intuitive Bismarckians? Across three studies in the United Kingdom and the United States — two with nationally representative samples and one preregistered (total N = 1911) — we observed robust associations between fear of being violently dispossessed and support for progressive redistribution. These associations were substantial and persisted even after controlling for other motives previously linked to redistribution, including self-interest, compassion, malicious envy, coercive egalitarianism, and proportionality, as well as political orientation. By elucidating the psychological mechanisms underpinning resource transfers, these findings advance our understanding of why individuals support redistribution in complex societies.