Does democracy negatively affect inflation?
We should consider the relationship between inflation and democracy because scientists are very concerned about this issue, so much so that studies divide academics into two parts. There is no consensus on the first group’s argument on the inflation-democracy interaction. The second group believes that democracy has an inverse interaction with inflation. They demonstrate this inverse relationship with examples from different geographies around the world.
The effects of inflation on economic activities is widely accepted
by the masses. Experimental studies refer to the following negative effects:
1- It is a variable that affects the basic drivers of growth.
2- Consumption decreases as price increases. The whole economy also gets its share from this.
3- While raw material prices and nominal wages increase, investment appetite is affected negatively.
4- In an economy with inflation, trade balance loses its global competitive power.
5- Damage to the social fabric begins. Non-governmental organizations and entrepreneurship are negatively affected.
6- Purchasing power decreases. Where are the solutions to inflation?
There are thought to be three basic solutions for inflation in global practice. These include:
a. Monetary and fiscal policies to counter inflation.
b. An independent Central Bank that can effectively break inflation rigidity.
c. Democracy, which exerts a restraining influence on inflation.
Rodrik, Acemoglu, Person, Satyanah, Subramanian, Rowthorn, Hirchman, Linberg and Maier, Dornbusch and Edwards, Sachs and others, known for their work on the negative relationship between democracy and inflation, have investigated the same issue in different countries. There is an irregular relationship between democracy and inflation all over the world.
Why is democracy necessary? Because it is the foundation of social equality. Why is democracy essential? Because the fair distribution of wealth can’t be achieved without democracy. Why does democracy extend to the economy? Because no economic model can be sustainable without democracy.