Abstract:
This paper analyzes the evolution of inequality in Poland
during the economic transition that began in 1989–1990. Using microdata
from the Household Budget Surveys, we find that, after a brief spike in
1989, income and consumption inequality actually declined to below
pretransition levels during 1990–1992 and then increased gradually, rising
only moderately above pretransition levels by 1997. In sharp contrast ,
inequality in labor earnings increased markedly and consistently throughout
the 1990–1997 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-oriente d reforms in the early years of
transition , paving the way for rapid growth. Finally, we provide crosscountry
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 suggesting that redistribution that reduces inequality
can enhance growth.
