Russian Roulette- Expenditure Inequality and Instability in Russia, 1994-1998

This paper uses the second phase of the Russian Longitudinal Monitoring Survey to investigate the changes in expenditure inequality and instability in Russia between the autumn of 1994 and the autumn of 1998. The expenditure distribution is stable in spite of the economic and political turmoil Russia is going through. However, that does not imply much economic stability. Households' expenditure fluctuated considerably, with over 60 percent of the population's expenditure either more than doubling or falling to less than half their previous levels. Only about 10 percent of all households experienced an expenditure shock of less than 10 percent. The measured level of expenditure mobility is very high. This raises the question whether the observed mobility is in fact the expenditure instability. Distinguishing between the two is crucial for policy makers. While the mobility is often viewed as favorable, the high instability may affect the incentives of Russians to support the economic reforms, acquire human capital, and undertake entrepreneurial activities.