Reform And Inequality During The Transition: An Analysis Using Panel Household Survey Data, 1990-2005

Abstract

This paper, using for the first time household survey data from 26 post-communist countries, covering the period 1990-2005, 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 smallscale 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.

Speed and Sequencing of Transition Reforms and Income Inequality: A Panel Data Analysis

“…Ivanova () provides descriptive empirical evidence for Hungary, Poland, and Bulgaria and points out that the weak social policies, which accompanied reforms strongly biased toward growth concerns, led to a remarkable decline in socioeconomic equality. Milanovic and Ersado () is to the best of our knowledge the only attempt to directly link transition reforms to inequality in a cross‐country perspective. A panel approach (on 26 formerly planned economies in the years 1990–2005) is employed to identify the effects exerted on decile income shares by progress in reforms, as measured by the EBRD transition indicators.…”

“…Of course a summary indicator of progress of reforms provides an idea on the timing of the transition process, but a variety of possible combinations of single reforms may lie behind. The limited specific literature available provides insights into the inequality effects of single reforms (Milanovic and Ersado, ), emphasizing their effects on both wages and profits. Our point is that their effect cannot be easily identified if each single reform is not considered in connection with the other ones.…”

“…As already mentioned, the only previous attempt to consider the inequality effects of transition reforms in a cross‐country perspective is Milanovic and Ersado (). However, they simply use the nine EBRD indicators jointly in their regressions (with a serious threat of multicollinearity, not dealt with in the econometrics), and do not address explicitly speed and sequencing aspects.…”

“…For example, a crucial role might have been played by the approach followed to implement privatization processes, an aspect only partially captured by the EBRD indices. Following Milanovic and Ersado (), we included among the regressors: the growth rate of the economy ( growth ), inflation ( inflation ), government spending as a share of GDP ( govshare ), industry structure ( agrshare ), and a control for war episodes ( war ).…”

Who Wants to Redistribute? An Analysis of 14 Post‐Soviet Nations

“…The transition from a centrally planned to a market economy has completely changed the situation. Public property was privatized, compression of wages was abolished and inequality in the use of social welfare services significantly increased, leading to a rise in disparities between the rich and the poor in transitional countries during the late 1980s and 1990s (Milanovic 1999; Milanovic and Ersado 2010). The increase in inequality seems to have been especially elevated in the countries of the Caucasus and Central Asia (Falkingham 2004; Fox 2003).…”