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A Note on Income Inequality in East and Central Europe

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Abstract

This paper examines the proposition that the transition process to a capitalist economic system in Eastern and Central European nations has introduced greater income inequality than in long-time capitalist nations at similar stages of development. In the empirical analysis, I use comparable inequality data from the Luxembourg Income Study, hold constant a number of general causal determinants of inequality, and show that such inequality in Eastern and Central Europe is significantly less than in nations where capitalism has long held sway.

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Notes

  1. Owing to scarcity of income data of East European nations during the communist period, this conclusion has not been universally held. Atkinson and Micklewright (1992, Chapter 2), however, cite several studies reporting greater inequality in the communist than comparable capitalist nations.

  2. Regressions using the logarithm of GDP per capita and its square yield a somewhat lower coefficient of determination than when these variables are used without transformation.

  3. The attitudes variable came from a principal component analysis of 11 values concerning income inequality from Inglehart et al. (2004). The macro variables were GDP growth and the GDP price index. The educational quality data were drawn from PISA (Programme for International Student Assessment) assessment scores for 2000 and data on spatial segregation came from Alesina and Zhuravskaya (2011).

  4. See Forster and Vleminckx (2004) for a detailed description of the LIS procedures.

  5. The Gini coefficient (G) is: , where y i is the income of individuals ranked from i=1 to n.

  6. The Atkinson index (A) is based on a social welfare function indicating the amount of redistribution necessary to have the same level of welfare. It depends, of course, on the degree to which we are adverse to low inequality, a parameter given by ɛ. Using u=mean income, N=number of cases, and Y=income, the Atkinson index (A) is calculated by:

    when ɛ≠1 and

    when ɛ=1.

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Authors and Affiliations

  1. Department of Economics, Swarthmore College, Swarthmore, PA 19081, USA

    Frederic L Pryor

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  1. Frederic L Pryor
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Appendix

Appendix

Sources of Data:

  1. 1

    Inequality measures: These data come from the ‘key figures’ of the Luxembourg Income Study (LIS) (2011) and were chosen from the wave closest to 2000.

  2. 2

    Per capita GDP: These are World Bank (2011) estimates of per capita GDP in 2000 in thousands of US dollars of the same year. The Taiwan data are estimates, based on 1990 dollar estimates by Maddison (2004), updated to dollars of 2000.

  3. 3

    Social protection: Most of the data on government social protection as a percentage of GDP come from the OECD (2007), supplemented for non-OECD nations by the International Monetary Fund (2003). The data for Estonia are an estimate, based on the assumption that intergovernmental transfers were minimal. For other countries (Brazil, Canada, Colombia, Guatemala, Mexico, Peru, and Switzerland), I estimated social protection expenditures with a regression using data on social protection expenditures from the United Nations (2007) data on ‘social benefits except in-kind’ for those countries for which data are available for both series. The GDP denominator comes from United Nation national accounts database <http://unstats.un.org/unsd/snaama/dnlList.asp> (accessed December 2011). For Taiwan I obtained data from the Taiwanese Directorate-General of Budget, Accounting, and Statistics (2011). For all estimates I use data for 2000 or the closest year.

  4. 4

    Trade openness: These data, except for Taiwan, come from the World Bank and represent the average ratio for 1990 through 2000 of (exports+imports)/(2 × GDP). For Taiwan I obtained data from the Taiwanese Directorate-General of Budget, Accounting, and Statistics (2011).

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Pryor, F. A Note on Income Inequality in East and Central Europe. Comp Econ Stud 56, 42–51 (2014). https://doi.org/10.1057/ces.2013.31

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