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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

    ()
    (The World Bank)

  • Ersado, Lire

    ()
    (The World Bank)

Abstract

Using for the first time household survey data from 26 post-Communist countries, covering the period 1990-2005, this paper examines correlates of unprecedented increases in inequality registered by most of the economies. The analysis shows, after controlling for country fixed effects and type of survey used, that economic reform is strongly negatively associated with the income share of the bottom decile, and positively with the income shares of the top two deciles. However, breaking economic reform into its component parts, the picture is more nuanced. Large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for the pro-inequality effect; small-scale privatization tends to raise the income shares of the bottom deciles. Acceleration in growth is also pro-rich. But democratization is strongly pro-poor, as is lower inflation. Somewhat surprisingly, the analysis finds no evidence that greater government spending as share of gross domestic income reduces inequality.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4780.

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Length: 35 pages
Date of creation: 01 Nov 2008
Date of revision:
Handle: RePEc:wbk:wbrwps:4780

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Keywords: Inequality; transition; economic policy;

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References

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  1. By Ales BulÌr, 2001. "Income Inequality: Does Inflation Matter?," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 5.
  2. 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.
  3. Michael P. Keane & Eswar S. Prasad, 2002. "Inequality, Transfers, And Growth: New Evidence From The Economic Transition In Poland," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 324-341, May.
  4. 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.
  5. Milanovic, Branko, 2007. "Where in the world are you? Assessing the importance of circumstance and effort in a world of different mean country incomes and (almost) no migration," MPRA Paper 3420, University Library of Munich, Germany.
  6. Jens H�lscher, 2006. "Income Distribution and Convergence in the Transition Process – A Cross-Country Comparison," Comparative Economic Studies, Palgrave Macmillan, vol. 48(2), pages 302-325, June.
  7. Dani Rodrik, 1998. "Democracies Pay Higher Wages," NBER Working Papers 6364, National Bureau of Economic Research, Inc.
  8. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
  9. Ales Bulir, 1998. "Income Inequality," IMF Working Papers 98/7, International Monetary Fund.
  10. José Gabriel Palma, 2006. "Globalizing Inequality: ‘Centrifugal’ and ‘Centripetal’ Forces at Work," Working Papers 35, United Nations, Department of Economics and Social Affairs.
  11. Mitra, Pradeep & Yemtsov, Ruslan, 2006. "Increasing inequality in transition economies : is there more to come?," Policy Research Working Paper Series 4007, The World Bank.
  12. 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.
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Cited by:
  1. Sergei Guriev & Ekaterina Zhuravskaya, 2009. "(Un)happiness in Transition," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 143-68, Spring.
  2. Facundo Alvaredo & Leonardo Gasparini, 2013. "Recent Trends in Inequality and Poverty in Developing Countries," CEDLAS, Working Papers 0151, CEDLAS, Universidad Nacional de La Plata.
  3. R. Rovelli & A. Zaiceva, 2011. "Individual support for economic and political changes: Evidence from transition countries, 1991-2004," Working Papers wp736, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Bojana Radovanovic & Dragan Filimonovic, 2012. "Developments in the Available Inequality Indexes for the Western Balkan Countries: Trends in the last 10 Years," Book Chapters, Institute of Economic Sciences.
  5. Golinelli, Roberto & Rovelli, Riccardo, 2013. "Did growth and reforms increase citizens' support for the transition?," European Journal of Political Economy, Elsevier, vol. 30(C), pages 112-137.

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