Economic Inequality in Central, East and Southeast Europe the Wiiw Balkan Observatory
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The wiiw Balkan Observatory February Working Papers|074| 2008 Sebastian Leitner and Mario Holzner Economic Inequality in Central, East and Southeast Europe The wiiw Balkan Observatory www.balkan-observatory.net About Shortly after the end of the Kosovo war, the last of the Yugoslav dissolution wars, the Balkan Reconstruction Observatory was set up jointly by the Hellenic Observatory, the Centre for the Study of Global Governance, both institutes at the London School of Economics (LSE), and the Vienna Institute for International Economic Studies (wiiw). A brainstorming meeting on Reconstruction and Regional Co-operation in the Balkans was held in Vouliagmeni on 8-10 July 1999, covering the issues of security, democratisation, economic reconstruction and the role of civil society. It was attended by academics and policy makers from all the countries in the region, from a number of EU countries, from the European Commission, the USA and Russia. Based on ideas and discussions generated at this meeting, a policy paper on Balkan Reconstruction and European Integration was the product of a collaborative effort by the two LSE institutes and the wiiw. The paper was presented at a follow-up meeting on Reconstruction and Integration in Southeast Europe in Vienna on 12-13 November 1999, which focused on the economic aspects of the process of reconstruction in the Balkans. It is this policy paper that became the very first Working Paper of the wiiw Balkan Observatory Working Papers series. The Working Papers are published online at www.balkan- observatory.net, the internet portal of the wiiw Balkan Observatory. It is a portal for research and communication in relation to economic developments in Southeast Europe maintained by the wiiw since 1999. Since 2000 it also serves as a forum for the Global Development Network Southeast Europe (GDN-SEE) project, which is based on an initiative by The World Bank with financial support from the Austrian Ministry of Finance and the Oesterreichische Nationalbank. The purpose of the GDN-SEE project is the creation of research networks throughout Southeast Europe in order to enhance the economic research capacity in Southeast Europe, to build new research capacities by mobilising young researchers, to promote knowledge transfer into the region, to facilitate networking between researchers within the region, and to assist in securing knowledge transfer from researchers to policy makers. The wiiw Balkan Observatory Working Papers series is one way to achieve these objectives. The wiiw Balkan Observatory Global Development Network Southeast Europe This study has been developed in the framework of research networks initiated and monitored by wiiw under the premises of the GDN–SEE partnership. The Global Development Network, initiated by The World Bank, is a global network of research and policy institutes working together to address the problems of national and regional development. It promotes the generation of local knowledge in developing and transition countries and aims at building research capacities in the different regions. The Vienna Institute for International Economic Studies is a GDN Partner Institute and acts as a hub for Southeast Europe. The GDN–wiiw partnership aims to support the enhancement of economic research capacity in Southeast Europe, to promote knowledge transfer to SEE, to facilitate networking among researchers within SEE and to assist in securing knowledge transfer from researchers to policy makers. The GDN–SEE programme is financed by the Global Development Network, the Austrian Ministry of Finance and the Jubiläumsfonds der Oesterreichischen Nationalbank. For additional information see www.balkan-observatory.net, www.wiiw.ac.at and www.gdnet.org I NTERVENTION European Journal of Economics and Economic Policies Vol. 5 (2008), Number 1 | Jg. 5 (2008), Heft 1 Editorial . 4 Forum Interview with Anthony Atkinson . 9 Bruno Rossmann: Rückkehr zu einem gerechten Abgabensystem: Das Beispiel Österreich . 12 Return to a Fair Tax System: Th e Example of Austria Silvia Angelo, Andrea Grisold: Zur Verteilung von Arbeitszeit und Ungleichheit. Eine geschlechts- spezifi sche Betrachtung im EU-Kontext . 20 Gender Equality and Working Hours: Th e Obvious and the Hidden Connection Pirmin Fessler, Peter Mooslechner: Arme Schuldner – Reiche Schuldner? Haushaltsverschuldung und Geldvermögen privater Haushalte auf Basis von Mikrodaten . 31 Poor Debtors – Rich Debtors? Household Indebtedness and Financial Assets of Private Households Based on Micro Data Kurt Bayer: Does Globalization Make the World More Equitable? . 45 Engelbert Stockhammer: Wage Flexibility or Wage Coordination? Economic Policy Implications of the Wage-led Demand Regime in the Euro Area . 54 Martin Schürz: Auf der Suche nach dem verschwiegenen Reichtum . 63 Searching for Clandestine Wealth 2 Contents | Inhalt Articles | Artikel Manfred Nitsch, Frank Diebel: Guānxi Economics: Confucius meets Lenin, Keynes, and Schumpeter in Contemporary China . 77 Gunther Tichy: Th e Economic Consequences of Demographic Change: Its Impact on Growth, Investment and the Capital Stock . 105 Special Issue: Inequality on the Rise? Peter Krause: Redistributive Impacts of Government and Private Household Activities. Trends in Equivalized Household Net Incomes and Intra-household Earnings in Germany, 1985 – 2005 . 129 Sebastian Leitner, Mario Holzner: Economic Inequality in Central, East and Southeast Europe . 155 Branko Milanovic: Rules of Redistribution and Foreign Aid: A Proposal for a Change in the Rules Governing Eligibility for Foreign Aid . 189 Book Reviews | Rezensionen Paul Davidson: John Maynard Keynes ( Peter Spahn) . 207 Wynne Godley, Marc Lavoie: Monetary Economics. An Integrated Approach to Credit, Money, Income, Production and Wealth ( Till van Treeck) . 209 McCombie, John, Rodriguez Gonzales, Carlos (eds.): Th e European Union. Current Problems and Prospects ( Bernd Berghuber) . 211 Contents | Inhalt 3 Birger P. Priddat ( Hg.): Neuroökonomie. Neue Th eorien zu Konsum, Marketing und emotionalem Verhalten in der Ökonomie ( Torsten Niechoj) . 214 Brigitte Young ( Hg.): Die politische Ökonomie des Dienstleistungsabkommens (GATS). Gender in EU und China (Christoph Scherrer) . 217 Reviews of Conference Books of the Research Network Makroeconomics and Macroeconomic Policies | Rezensionen der Tagungsbände des Forschungs netz - werks Makroökonomie und Makropolitik Eckhard Hein, Jan Priewe, Achim Truger (eds.): European Integration in Crisis Eckhard Hein, Arne Heise, Achim Truger (eds.): European Economic Policies. Alternatives to Orthodox Analysis and Policy (Stefan Ederer) . 218 Philip Arestis, Eckhard Hein, Edwin Le Heron (eds.): Aspects of Modern Monetary and Macroeconomic Policies ( Jan-Oliver Menz) . 223 Eckhard Hein, Achim Truger (eds.): Money, Distribution and Economic Policy. Alternatives to Orthodox Macroeconomics (Lena Vogel ) . 225 Economic Inequality in Central, East and Southeast Europe Sebastian Leitner* and Mario Holzner* Th e article analyses the issue of economic inequality in the transition economies of Central, East and Southeast Europe. It consists of a literature review and a descriptive analysis as well as an econometric modelling exercise. In the fi rst part we point at the fact that the rise in income inequality was triggered by the mag- nitude of transitional output loss and a reduction of formal employment. Rising wage inequality was at the core of total income dispersion, while government transfers had a redistributional function only in Central and Southeast Euro- pean countries contrary to the Commonwealth of Independent States (CIS). In the econometric analysis it is found that for instance public utilities infrastruc- ture liberalisation has increased inequality in transition, while price and trade liberalisation has decreased it. A high share of employment in industry and high government expenditures are connected with less inequality. JEL classifi cations: D63, O15, P36 Keywords: income distribution, inequality, transition economies 1. Introduction Th ere exists an enormous amount of economic literature on the general topic of inequality. A large variety of aspects of social and economic inequality have been looked at in great de- tail – such as for instance: inequality and growth (e. g. Kuznets 1955, Ravallion 2001, Bena- bou 1996, Deininger / Squire 1998, Alesina / Rodrik 1994, or Aghion et al. 1999), inequality and trade liberalisation (e. g. Milanovic / Squire 2005, Bhatta 2002), inequality and demog- * Vienna Institute for International Economic Studies ( WIIW ), Vienna. Correspondence Address: Mag. Sebastian Leitner, Vienna Institute for International Economic Studies, Oppolzergasse 6, 1010 Vi- enna, Austria, e-Mail: [email protected] Received 13 Apr 2007, accepted 8 Feb 2008 © Intervention 5 (1), 2008, 155 – 188 156 Intervention. Journal of Economics raphy (e. g. Lam 1986, or Chu / Jiang 1997), inequality and health (e. g. Anand et al. 2005), inequality and migration (e. g. Black et al. 2005, Davies / Wooton 1992, Stark 2006 ), inequal- ity and human capital (e. g. Chiu 1998), inequality and technological change (e. g. Acemoglu 2002), inequality and government policies (e. g. Davies 1986, Lambert 1993, Benedict / Shaw 1995). Th ese contributions highlight diff erent notions of inequality (e. g. functional versus personal income distribution) as well as a number of explanatory factors mutually related to inequality. In addition there exists a wide literature on the measurement and explana- tion of personal income