published in: Review of Economics and Statistics, 2002, 84 (2), 324-341
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.
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