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

Michael Keane () and Eswar Prasad ()

No 448, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes the evolution of inequality in Poland 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.

Keywords: political economy of reforms; Consumption and income inequality; social transfers; transition economies (search for similar items in EconPapers)
JEL-codes: D31 J31 O15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-lab
Date: 2002-03
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Published in: Review of Economics and Statistics, 2002, 84 (2), 324-341

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Journal Article: Inequality, Transfers, And Growth: New Evidence From The Economic Transition In Poland (2002) Downloads
Working Paper: Inequality, Transfers and Growth; New Evidence From the Economic Transition in Poland (2000) Downloads
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