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Inequality, Transfers and Growth: New Evidence from the Economic Transition in Poland

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Author Info
Keane, Michael P. (Yale University)
Prasad, Eswar S. () (International Monetary Fund and IZA, Bonn)

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Abstract

This paper analyzes the evolution of inequality in Poland during the economic transition that began in 1989-90. Using micro data from the Household Budget Surveys, we find that, after a brief spike in 1989, income and consumption inequality actually declined to below pre-transition levels during 1990-92 and then increased gradually, rising only moderately above pre-transition levels by 1997. In sharp contrast, inequality in labor earnings increased markedly and consistently throughout the 1990-97 period. We find that social transfer mechanisms, including pensions, played an important role in mitigating increases in both overall inequality and poverty. We argue that, from a political economy perspective, transfer mechanisms were well-designed to reduce political resistance to market-oriented reforms in the early years of transition, paving the way for rapid growth. Finally, we provide cross-country evidence from the transition economies that is consistent with our interpretation of the Polish experience and is also consistent with recent work in growth theory which suggests that redistribution that reduces inequality can enhance growth.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 448.

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Length: 44 pages
Date of creation: Mar 2002
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Handle: RePEc:iza:izadps:dp448

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Related research
Keywords: Consumption and income inequality social transfers political economy of reforms transition economies

Other versions of this item:

Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Torrey, Barbara Boyle & Smeeding, Timothy M & Bailey, Debra, 1999. "Income Transitions in Central European Households," Economic Development and Cultural Change, University of Chicago Press, vol. 47(2), pages 237-57, January.
  2. Branko Milanovic, 1999. "Explaining the increase in inequality during transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 299-341, July. [Downloadable!] (restricted)
  3. Eswar Prasad & Michael P. Keane, 1999. "Consumption and Income Inequality in Poland During the Economic Transition," IMF Working Papers 99/14, International Monetary Fund.
    Other versions:
  4. H Lehmann & J Wadsworth, 2000. "Tenures that Shook the World: Worker Turnover in Russia, Poland and Britain," CEP Discussion Papers 0459, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  5. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  6. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September. [Downloadable!] (restricted)
  7. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Philippe Aghion & Eve Caroli & Cecilia Garcia-Penalosa, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December. [Downloadable!] (restricted)
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  9. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  10. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June. [Downloadable!] (restricted)
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  11. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April. [Downloadable!] (restricted)
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  12. Garner, Thesia I & Terrell, Katherine, 1998. "A Gini Decomposition Analysis of Inequality in the Czech and Slovak Republics during the Transition," CEPR Discussion Papers 1897, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. McClements, L. D., 1977. "Equivalence scales for children," Journal of Public Economics, Elsevier, vol. 8(2), pages 191-210, October. [Downloadable!] (restricted)
  14. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank. [Downloadable!]
  15. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  16. Brainerd, Elizabeth, 1998. "Winners and Losers in Russia's Economic Transition," American Economic Review, American Economic Association, vol. 88(5), pages 1094-1116, December. [Downloadable!] (restricted)
  17. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November. [Downloadable!] (restricted)
  18. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  19. Benabou, R., 1996. "Inequality and Growth," Working Papers 96-22, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  20. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June. [Downloadable!] (restricted)
  21. Svejnar, Jan, 1996. "Enterprises and Workers in the Transition: Econometric Evidence," American Economic Review, American Economic Association, vol. 86(2), pages 123-27, May. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tilman Brück & Alexander M. Danzer & Alexander Muravyev & Natalia Weißhaar, 2007. "Determinants of Poverty during Transition : Household Survey Evidence from Ukraine," ESCIRRU Working Papers 2, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  2. Gerard Rpland, 2001. "The Political Economy of Transition," William Davidson Institute Working Papers Series 413, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  3. Jonathan Fisher & David Johnson, 2006. "Consumption Mobility in the United States: Evidence from Two Panel Data Sets," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 6(1), pages 1474-1474. [Downloadable!] (restricted)
  4. Irina Dolinskaya, 2002. "Transition and Regional Inequality in Russia: Reorganization or Procrastination?," IMF Working Papers 02/169, International Monetary Fund. [Downloadable!]
  5. Svend E. Hougaard Jensen & Tobias N. Rasmussen & Thomas Fox Rutherford, 2002. "Economic Transition, Entrepreneurial Capacity, and Intergenerational Distribution," IMF Working Papers 02/180, International Monetary Fund. [Downloadable!]
  6. Fleisher, Belton M. & Sabirianova, Klara & Wang, Xiaojun, 2004. "Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia," IZA Discussion Papers 1182, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Heshmati, Almas, 2004. "Growth, Inequality and Poverty Relationships," IZA Discussion Papers 1338, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Diego Restuccia & Carlos Urrutia, 2004. "Intergenerational Persistence of Earnings: The Role of Early and College Education," American Economic Review, American Economic Association, vol. 94(5), pages 1354-1378, December. [Downloadable!] (restricted)
    Other versions:
  9. Olivier Bargain & Leszek Morawski & Michal Myck & Mieczyslaw Socha, 2007. "As SIMPL As That: Introducing a Tax-Benefit Microsimulation Model for Poland," IZA Discussion Papers 2988, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter. [Downloadable!] (restricted)
  11. Beblo, Miriam & Lauer, Charlotte, 2002. "Intergenerational Poverty Dynamics in Poland: Family Background and Children’s Educational Attainment During Transition," ZEW Discussion Papers 02-34, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  12. Heshmati, Almas, 2004. "Regional Income Inequality in Selected Large Countries," IZA Discussion Papers 1307, Institute for the Study of Labor (IZA). [Downloadable!]
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