Cash social transfers, direct taxes, and income distribution in late socialism

The author analyzes the impact of direct taxes and cash social transfers on income distribution in Bulgaria, Czechoslovakia, Hungary, Poland and Yugoslavia in the years before the collapse of communism. He contrasts the results for socialist and market economies. Cash social transfers accounted for about a fifth of gross income, a proportion comparable with that in developed welfare economies. Generally, cash transfers were unrelated to income in socialist countries, in marked contrast with market economies, where such transfers go mainly to low income households. Direct taxes played almost no role in income redistribution. They were small - 1 to 2 percent of gross income, except in Hungary - and proportional to income. Most taxes were paid by enterprises, as payroll taxes, and most workers were unaware of the taxation and that public spending could not permanently exceed public revenues from taxation. In socialist countries, social support was built into the system through full employment guarantees, state run pension schemes, and free public education and health care. The only explicit policy toward poverty involved alcoholics, handicapped people, and other special categories. This system is being replaced by a market system in which the labor market is key and those who cannot earn enough must be supported by the state. To counteract increasing income disparities, social transfers must be focussed more on the poor. Eastern European states are ill prepared for this role. They have no experience in identifying the needy and targeting support to them. The question is, toward which world of welfare capitalism are the formerly socialist countries likely to evolve? The author contends that the Central European countries will probably evolve toward the corporatist model of continental Europe. Capitalist countries in Europe tend to have large social transfers that are often related to previous earnings, so they have relatively limited roles in income distribution. Transfers are closer to social insurance than to social assistance. The evolution of more agricultural Balkan countries and the Slavic republics of the former Soviet Union is more difficult to predict. Poorer and more agriculture based countries are generally less able to administer welfare schemes, gauge individual incomes, deliver social support - and their finances may be even more strained than those of their Central European counterparts.Services&Transfers to Poor,Poverty Impact Evaluation,Economic Theory&Research,Environmental Economics&Policies,Safety Nets and Transfers

QAT EXPENDITURES IN YEMEN AND DJIBOUTI: AN EMPIRICAL ANALYSIS

Using household surveys from Yemen and Djibouti, the paper analyzes determinants of qat consumptions in two countries. The results confirm huge importance of qat in daily life: with between one-half (in Djibouti) and 70 percent (in Yemen) of all households reporting at least one user. But in Yemen, qat consumption is remarkably flat across income groups, age, and between rural and urban areas. Qat is a normal good and there is no indication that its use substitutes for food. In Djibouti, however, qat consumption increases with income, and appears to act as a substitute for food consumption. In both countries however there is a strong gender bias in the use: men are much more likely to use qat than women.qat; Horn of Africa; consumption

Why we all do care about inequality (but are loath to admit it)

This note is motivated by recent arguments made by Martin Feldstein in which the relevance of inequality is dismissed (if everybody's income goes up, who cares if inequality is up too?), and the argument is made that only poverty alleviation should matter. This note shows that we all do care about inequality, and to hold that we should be concerned with poverty solely and not with inequality is internally inconsistent.Inequality, poverty, redistribution

Ethical case and economic feasibility of global transfers

Almost all social transfers are conducted within nations. Is there a case for cross border transfers? What could be the grounds for such transfers from the globally rich to globally poor people? The paper explores three possible grounds: compensation for the past wrongs; economic and political interdependence today; and the application of a Rawlsian difference principle at a global scale. The paper ends by arguing that global non-governmental institutions are likely to play a key advocacy role.global distributive justice; global inequality

Global inequality and global inequality extraction ratio: The story of the last two centuries

Using social tables, we make an estimate of global inequality (inequality among world citizens) in early 19th century. We then show that the level and composition of global inequality have changed over the last two centuries. The level has increased reaching a high plateau around 1950s, and the main determinants of global inequality have become differences in mean country incomes rather than inequalities within nations. The inequality extraction ratio (the percentage of total inequality that was extracted by global elites) has remained surprisingly stable, at around 70 percent of the maximum global Gini, during the last 100 years.global inequality; economic history; inequality extraction ratio

The Ricardian Vice: Why Sala-i-Martin’s calculations of world income inequality are wrong

The paper discusses recent world income inequality calculations by Sala- i-Martin. It shows that the two main problems with which the author had to grapple (too few data to derive countries’ income distributions, and sparseness of such data in time) are not solved in a satisfactory fashion. They, and several other simplifying assumptions, make Sala-i- Martin results very dubious. We argue that Sala-i-Martin has ended up by producing a population-weighted inter-national distribution of income augmented by a constant shift parameter and not a distribution of income among world citizens.income inequality, world, globalization

Change in the perception of the poverty line during times of depression : Russia 1993-96

During Russia's economic transition real income declined precipitously for most of the population. How were Russians'perceptions of the minimum income level needed to survive affected by such a rapid decline in their incomes? Based on data collected from repeated surveys of individuals during the period from March 1993 to September 1996, the authors find that the subjective estimate of that minimum income for an adult Russian decreased by about 1.7 percent each month. This sharp reduction in the subjective poverty line meant that proportionately fewer people felt poor. However at all times at least 60 percent of the population considered itself poor. In other words, the percentage of the"subjectively poor"tended to decline as the perception of the needed minimum was reduced. In this somewhat unusual situation, the percentage of the subjectively poor decreased more or less in step with a reduction in people's real income. Only larger-than-usual income decreases were needed to jolt the population - that is, to keep the percentage of the subjectively poor unchanged. The percentage of the self-addressed poor was always lower than the percentage of the poor according to the"social"subjective poverty line. This suggests that pockets of the population regarded their own income as adequate although in the public perception they were poor. This in turn suggests two mechanisms for adapting to worsening circumstances: 1) a reduction in what people perceive to be the minimum income needed for survival and 2) the existence in the population of pockets of people who demand even less than others.Environmental Economics&Policies,Services&Transfers to Poor,Economic Conditions and Volatility,Poverty Impact Evaluation,Poverty Monitoring&Analysis,Environmental Economics&Policies,Inequality,Services&Transfers to Poor,Safety Nets and Transfers,Rural Poverty Reduction

Can we discern the effect of globalization on income distribution? evidence from household budget surveys

The effects of globalization on income distribution in rich and poor countries are a matter of controversy. While international trade theory in its most abstract formulation implies that increased trade and foreign investment should make income distribution more equal in poor countries and less equal in rich countries, finding these effects has proved elusive. The author presents another attempt to discern the effects of globalization by using data from household budget surveys and looking at the impact of openness and foreign direct investment on relative income shares of low and high deciles. The author finds some evidence that at very low average income levels, it is the rich who benefit from openness. As income levels rise to those of countries such as Chile, Colombia, or Czech Republic, for example, the situation changes, and it is the relative income of the poor and the middle class that rises compared with the rich. It seems that openness makes income distribution worse before making it better-or differently in that the effect of openness on a country's income distribution depends on the country's initial income level.Poverty Impact Evaluation,Environmental Economics&Policies,Labor Policies,Economic Theory&Research,Fiscal&Monetary Policy,Inequality,Economic Theory&Research,Poverty Impact Evaluation,Environmental Economics&Policies,Governance Indicators

CAN WE DISCERN THE EFFECT OF GLOBALIZATION ON INCOME DISTRIBUTION? Evidence from Household Budget Surveys

The effects of globalization on income distribution within rich and poor countries are a matter of controversy. While international trade theory in its most abstract formulation implies that increased trade and foreign investment should make income distribution more equal in poor countries and less equal in rich countries, finding these effects has proved elusive. The paper presents another attempt to discern the effects of globalization by using the data from household budget surveys and looking at the impact of openness and direct foreign investment on relative income shares of low and high deciles. We find some evidence that at very low average income level, it is the rich who benefit from openness. As income level rises, that is around the income level of Colombia, Chile or Czech republic, the situation changes and it is the relative income of the poor and the middle class that rises compared to the rich. It seems that openness makes income distribution worse before making it better—or differently that the effect of openness on country’s income distribution depends on country’s initial income level.income distribution, inequality, globalization

Global inequality recalculated : the effect of new 2005 PPP estimates on global inequality

The results of new direct price level comparisons across 148 countries in 2005 have led to large revisions of purchasing power parity exchanges rates, particularly for China and India. The recalculation of international and global inequalities, using the new purchasing power parity rates, shows that inequalities are substantially higher than previously thought. Inequality between global citizens is estimated at 70 Gini points rather than 65 as before. The richest decile receives 57 percent of global income rather than 50 percent.Inequality,Poverty Impact Evaluation,Emerging Markets,Equity and Development,Economic Theory&Research