This paper explores the changes in inequality in Croatia during the period 1973-1998. The results based on the data from the Household Budget Surveys for 1973, 1978, 1983, 1988 and 1998 indicate that overall income inequality decreased in the 1973-1983 period, and increased afterwards. Gini coefficient rose from 0.286 in 1988 to 0.297 in 1998. This result challenges the general perception that inequality increased strongly during the transition period. Decomposition of Gini changes shows that the expansion of social transfers as well as absence of stronger rise in wage concentration account for only a mild increase in inequality.