The Inflation-Inequality Connection in the European Union: U-Turn to Equity?

In this study, we delve into the complex relationship between inflation and inequality in the European Union from 1990 to 2019. Specifically, we explore the non-linear nature of this relationship, uncover turning points, and reveal the distinctive U-shape of the relationship be- tween the two indicators. Our research also uncovers some striking findings: first, we discover that sales taxes disproportionately harm households and drive up inequality, and second, we find that income tax policies are very effective at reducing inequality in Western European countries, while they are substantially less effective in Eastern European countries with lower income tax rates.