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Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics

Author

Listed:
  • Nerijus Cerniauskas

    (Bank of Lithuania, Vilnius University)

  • Denisa M. Sologon

    (Luxembourg Institute of Socio-Economic Research (LISER))

  • Cathal O’Donoghue

    (The National University of Ireland, Galway)

  • Linas Tarasonis

    (Vilnius University, Bank of Lithuania)

Abstract

We model the household disposable income distribution in Lithuania and explore the drivers of the increase in income inequality between 2007 and 2015. We quantify the contributions of four factors to changes in the disposable income distribution: (i) demographics; (ii) labour market structure; (ii) returns and prices; and (iv) tax-benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two sub-periods: changes in the tax and benefit system successfully accommodated a rapid rise in market income inequality due to the global financial crisis during 2007-2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labour and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to the increase of income inequality in Lithuania.

Suggested Citation

  • Nerijus Cerniauskas & Denisa M. Sologon & Cathal O’Donoghue & Linas Tarasonis, 2020. "Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics," Bank of Lithuania Working Paper Series 71, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:71
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    References listed on IDEAS

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    2. Linas Tarasonis & Jose Garcia-Louzao, 2020. "A First Glance at the Minimum Wage Incidence in Lithuania using Social Security Data," Bank of Lithuania Discussion Paper Series 23, Bank of Lithuania.

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    More about this item

    Keywords

    income distribution; inequality; decompositions; microsimulation; tax-benefit policies; crisis; austerity; overtime comparison;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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