Risk of Increasing Income Inequality and Poverty: Analysis by Income Source

Abstract

The high and persistent level of income inequality limits the opportunities for economic growth and contributes to the persistence of a high poverty rate in Russia. Reducing inequality is integral to achieving the Sustainable Development Goals (SDG-10); thus, greater focus is needed to reduce income inequality. We assess income inequality based on a representative income and expenditure data collected at the micro level to determine the risk of increasing inequality and poverty in the context of specific socio-demographic groups and income sources. We look at the contribution of various household income sources to total income inequality, taking into account the differences in the weighting of income components, the unevenness of their distribution, and their correlation with the total distribution of income. The main data source is the project “The Russia Longitudinal Monitoring Survey-Higher School of Economics” (RLMS-HSE) for 2000–2018. Calculation of the elasticity of the Gini index by sources of total income for poor and non-poor households revealed their multidirectional impact on overall inequality. We show that social transfers in poor households do not help to reduce inequality. This indicates the need for closer attention to this phenomenon when making policy decisions connected with social policy. Moreover, the “hidden incomes” appear to be a factor reducing inequality for poor households within the framework of the accepted definitions and the formed sample of households.

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