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

  • Milanovic, Branko
  • Ersado, Lire

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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  1. Keane, M. P. & Prasad, E. S., 2000. "Inequality, Transfers and Growth: New Evidence from the Economic Transition in Poland," Working Papers 00-09, C.V. Starr Center for Applied Economics, New York University.
  2. Ales Bulir, 1998. "Income Inequality; Does Inflation Matter?," IMF Working Papers 98/7, International Monetary Fund.
  3. Rodrik, Dani, 1998. "Democracies Pay Higher Wages," CEPR Discussion Papers 1776, C.E.P.R. Discussion Papers.
  4. 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.
  5. Mitra, Pradeep & Yemtsov, Ruslan, 2006. "Increasing inequality in transition economies : is there more to come?," Policy Research Working Paper Series 4007, The World Bank.
  6. Ferreira, Francisco H. G., 1997. "Economic transition and the distributions of income and wealth," Policy Research Working Paper Series 1808, The World Bank.
  7. 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.
  8. José Gabriel Palma, 2006. "Globalizing Inequality: ‘Centrifugal’ and ‘Centripetal’ Forces at Work," Working Papers 35, United Nations, Department of Economics and Social Affairs.
  9. 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.
  10. 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.
  11. 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.
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