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Reform and Inequality during the Transition: An Analysis Using Panel Household Survey Data, 1990-2005

  • Milanovic, Branko

    ()

    (The World Bank)

  • Ersado, Lire

    ()

    (The World Bank)

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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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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  1. 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.
  2. Milanovic, Branko, 2008. "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," Policy Research Working Paper Series 4493, The World Bank.
  3. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
  4. Ales Bulir, 1998. "Income Inequality; Does Inflation Matter?," IMF Working Papers 98/7, International Monetary Fund.
  5. Rodrik, Dani, 1998. "Democracies Pay Higher Wages," CEPR Discussion Papers 1776, C.E.P.R. Discussion Papers.
  6. Keane, Michael P. & Prasad, Eswar, 2002. "Inequality, Transfers and Growth: New Evidence from the Economic Transition in Poland," IZA Discussion Papers 448, Institute for the Study of Labor (IZA).
  7. 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.
  8. Mitra, Pradeep & Yemtsov, Ruslan, 2006. "Increasing inequality in transition economies : is there more to come?," Policy Research Working Paper Series 4007, The World Bank.
  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. Ferreira, Francisco H. G., 1997. "Economic transition and the distributions of income and wealth," Policy Research Working Paper Series 1808, The World Bank.
  11. José Gabriel Palma, 2006. "Globalizing Inequality: ‘Centrifugal’ and ‘Centripetal’ Forces at Work," Working Papers 35, United Nations, Department of Economics and Social Affairs.
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