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Reform and inequality during the transition: An analysis using panel household survey data, 1990-2005

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Milanovic, Branko
Ersado, Lire

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Abstract

Using for the first time survey data from 26 post-Communist countries, covering the period 1990-2005, the paper examines correlates of unprecedented increases in inequality registered by most of these economies. We find that, after controlling for country-fixed effects and type of survey used, economic reform (measured by the EBRD index) is strongly negatively associated with bottom deciles’ income shares and positively with income shares of the top two deciles. However, once economic reform is broken into its different component parts, the picture is more nuanced: large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for this pro-inequality effect while small-scale privatization tends to raise income shares of the bottom deciles. Acceleration in growth is also pro-rich. On the other hand, democratization (measured by the Polity measure) is strongly pro-poor, as is lower inflation. Somewhat surprisingly, we find no evidence that higher government spending as share of GDI reduces inequality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7459.

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Date of creation: 05 Mar 2008
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Handle: RePEc:pra:mprapa:7459

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Related research
Keywords: Inequality transition economic policy

Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
P2 - Economic Systems - - Socialist Systems and Transition Economies
P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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  1. Mitra, Pradeep & Yemtsiv, Ruslan, 2006. "Increasing inequality in transition economies : is there more to come?," Policy Research Working Paper Series 4007, The World Bank. [Downloadable!]
  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. By Ales BulÌr, 2001. "Income Inequality: Does Inflation Matter?," IMF Staff Papers, Palgrave Macmillan Journals, vol. 48(1), pages 5. [Downloadable!] (restricted)
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  4. Dani Rodrik, 1999. "Democracies Pay Higher Wages," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 707-738, August. [Downloadable!] (restricted)
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  5. Francisco H. G. Ferreira, 1999. "Economic transition and the distributions of income and wealth," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 377-410, July. [Downloadable!] (restricted)
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  6. Sukiassyan, Grigor, 2007. "Inequality and growth: What does the transition economy data say?," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 35-56, March. [Downloadable!] (restricted)
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This page was last updated on 2008-10-6.

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