Financial development and the nexus between inflation and wealth inequality

Since the global financial crisis, the redistributive consequences of inflation have gained substantial attention. While income inequality has long dominated public discourse, wealth inequality, which is critical for shaping economic opportunities and political power, has been comparatively overlooked. This paper empirically examines how inflation affects wealth inequality, emphasizing the role of financial development. We focus on top wealth shares, as the recent surge in wealth inequality is largely driven by increasing concentration among a small elite. Using cross-country panel data, we find that inflation exacerbates wealth inequality by increasing top wealth shares while reducing those at the lower end of the distribution. These effects are mitigated by banking development but intensified by stock market development. Pathway analyses suggest that these impacts operate through entrepreneurship and asset prices. Financial reform policies that promote banking development and broaden access to stock markets may help mitigate inflation's adverse effects on wealth inequality.