Conflict inflation and delayed stabilization

•Main explanations of stabilizations’ delay view inflation as a deadlock’s result.•If wealth is polarized inflation is a means to transfer the stabilization’s burden.•Stabilization occurs when inflation-adverse interest groups take political power.•Estimates support this hypothesis for the 1920s and 1980s stabilizations.

There are numerous political economy approaches to the question of delayed stabilizations. However, all these approaches regard inflation as the unintentional result of the behavior of interest groups. In this paper we take the opposite view, namely, that when there is polarization of financial wealth, inflation is used as a tax to transfer the burden of stabilization onto some interest groups. In countries characterized by financial polarization, stabilization can occur only when there is a change in the political and economic equilibrium, and when parties which represent interest groups adverse to inflation support a new government coalition. The estimates of a Probit model support this hypothesis: the stabilizations after World War I and after the Great Inflation of the 1970s in several European countries showed remarkable political regularities. In fact, generally, these stabilizations occurred when there was a reversal of the political-economic equilibrium and government coalitions including rentiers’ representatives took power.