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

  • Keane, M. P.
  • Prasad, E. S.

This paper challenges the conventional wisdom that inequality in Poland increased markedly 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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File URL: http://econ.as.nyu.edu/docs/IO/9188/RR00-09.PDF
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 00-09.

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Length: 55 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:cvs:starer:00-09
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  1. Hartmut Lehmann & Jonathan Wadsworth, 1999. "Tenures that Shook the World: Worker Turnover in Russia, Poland and Britain," CERT Discussion Papers 9909, Centre for Economic Reform and Transformation, Heriot Watt University.
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  23. Keane, Michael & Prasad, Eswar, 1998. "Consumption and Income Inequality in Poland During the Economic Transition," Working Papers 98-38, C.V. Starr Center for Applied Economics, New York University.
  24. 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.
  25. 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.
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