Income inequality and poverty in Poland and Romania
Daniel MortazaviIsabel David
João SousaRenato Alves
General background
Communist Heritage Socialist ideology is against wide
differences in income Manual and non-manual wages were similar Vast majority of people worked in a state
firms
Romania 95,20%
Poland 70,40%
Socialist average 90%
OECD avarage 21,20%
State employment as a porportion of the labour force (1988)
Collapse of communism
What happened to the levels of social inequality and poverty in these countries?
Our goal is to answer this question to the specific cases of Romania and Poland
Income
Income: Poland and Romania
GDP Evolution: Growth and Decline
Private Entrepreneurialship Population Income
Social Transfers Structure of Employment
Sectors 1989 & 1997
Real GDP Evolution
Years Did GDP 1997
of GDP
Fall After Some Growth?
GDP index
Decline(1989 = 100)
Poland 2 no -3.1 1.6 111.8 1Romania 4 yes -6.4 -2.2 82.4 7
6.32.1
Countries
(Average Annual Rate
Rank
of GDP Growth)
90-93 94-97 90-97
Real GDP EvolutionReal GDP Evolution
Comparison of GDP Distribution
Entrepreneurial Activity
Population IncomeEconomic Importance of Social Transfers
1987-88 1993-94 1987-88 1993-94 1987-88 1993-94 1987-88 1993-94 1987-88 1993-94Poland 27 32 9 20 22 25 7 9 65 85Romania 35 33 9 9 3 14 4 5 52 61
TotalWages Cash social transfersNon-wage private
sector income
Social transfers in kind (health and
education)
Population income by sources (%GDP)
Structure of Employment Sectors 1989
Sector Bulgaria Czech Republic
Poland Romania Slovakia South OECD
North OECD
Agriculture 19.0 11.7 26.8 27.9 13.8 10.7 4.1Mining 2.6 3.6 3.4 2.3 1.0 0.4 1.0Manufacturing
34.9 34.0 24.5 33.0 32.1 22.0 26.3
Electricity, gas, water
0.8 1.4 1.1 1.2 1.6 0.9 1.1
Construction
7.8 7.3 7.8 7.0 11.6 8.1 6.4
Trade 9.2 11.5 8.9 5.9 11.1 19.3 17.4Transportation
6.8 6.5 7.2 6.9 6.4 6.0 6.0
Finance 0.6 0.5 1.0 0.3 0.4 6.1 8.6Community services
18.4 23.5 19.3 15.3 22.0 26.5 28.7
RI-South 24.2 17.2 23.0 31.3 18.4 - 10.0RI-North 27.3 19.6 27.7 33.4 21.6 10.0 -Source: OECD-Labor Force Statistics (1998) for OECD countries, and authors’ computations for Eastern European economies.
Structure of Employment Sectors 1997
Sector Bulgaria Hungary Poland Romania Slovakia South OECD
North OECD
Agriculture 24.3 7.9 20.5 37.5 8.6 9.3 3.0Mining 2.0 0.7 2.5 2.0 1.7 0.5 0.3Manufacturing
23.2 23.7 21.0 23.0 26.1 20.8 19.2
Electricity, gas, water
1.1 2.7 1.8 2.1 2.5 0.9 0.7
Construction 4.9 6.0 6.6 4.9 8.9 8.3 7.2Trade 12.4 16.9 14.5 10.3 14.4 21.2 18.6Transportation
7.7 8.5 6.2 5.6 7.4 5.6 6.2
Finance 1.6 2.3 2.1 0.8 1.4 7.7 11.2Community services
21.8 31.3 24.8 13.7 29.0 25.7 30.
RI-South 21.2 13.4 14.9 33.1 13.8 - -RI-North 28.9 15.4 22.6 40.0 18.6 12.0 -RI-North-89 27.3 19.6 27.7 33.4 21.6 - 9.3Source: OECD-Labor Force Statistics (1998) for OECD countries, and authors’ computations for Eastern European economies.
Inequality
Gini coefficient Explanation:
Scores are based on the Lorenz curve, which plots cumulative percentages of the population against their cumulative aggregate income
Ranges: 0 (0%) no concentration (perfect equality) 1 (100%) where there is total concentration
(perfect inequality).
Gini Coefficient
Gini Coefficient - Evolution
1987-88 1993-95 1996 1997 1998 1999 2000Romania 23 29 30,3 42,2 31,1 30,6Poland 26 28 32,8 33,4 31,6 29,3
Inequality distributionChanges in Quintile Shares between 1987-88 and 1993-94: Moderate Regressive
Disparity among social groups
Country 1987-88 1993-94Poland
Workers 107 85Farmers 121 77Pensioners 95 89
RomaniaWorkers 100 76Farmers 74 59Pensioners 88 68
P>W>F
F>P>W
Change in relative position
Change in Real and per Capita Income of Worker, Farmer and Pensioner Households
(Workers’ households real per capita income in 1987=100)
Composition of Disposable Income
Composition of Disposable Income in Poland, 1987-95
Concentration Coefficients of Wages, Cash Social Transfers, and Non-wage Private Sector Income in Poland, 1987-95
Evolution of welfare systems
Total Social Expenditures Poland
0
5
10
15
20
25
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
% of
GDP
Total Social Expenditures Romania
0
5
10
15
20
25
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
% of
GDP
Evolution of welfare systems
Poland
0
2
4
6
8
10
12
14
16
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
% o
f GDP
Pensions Unemployment benefits Other Benefits
Romania
02468
10121416
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
% of
GDP
Pensions Unemployment benefits Health Insurance
In 1992 was introduced the individual income tax
The gross wages and pensions were raised by the amount corresponding to the lowest tax rate (20%)
Personal Income Tax Expenditure Programs
Taxation System: Poland
These programs are being criticized Too costly They turned out to be extremely
regressive benefiting the high income tax payers
Taxation System: Poland
I 40% 25%II 30% 16%III 19% 14%
Normal Income Tax Brackets
With exemptions allowed
Poland is introducing a fiscal reform Gradual reduction of corporate income
tax In 2000 to 30% In 2001 to 28% In 2002 to 24% In 2004 to 22%
VAT is being changed according to EU rules
Taxation System: Poland
Initialy Romania introduced a one rate VAT taxe, but then moved for a two rate tax Reduced and normal rate Exemptions like: Bread, Fuel and electricity
for domestic use In 2000 New global income tax regime
Salaries and income from independent activities will be aggregated and taxed at progressive tax rates
Taxation System: Romania
New proposal to reform (2003) Introduce a flat-tax-rate Inequality problems: It is a not a progressive tax
Some changes in VAT (once again according to EU rules) Tax-rate increased to 22% and 11% (normal and
reduced rate) Reduce the scope of exempt transactions (ex.
bread and newspapers) Eliminate differences in taxation between
imported services and similar domestic services
Taxation System: Romania
Poverty
Poverty Headcount
Definition: number of people falling below the poverty line, divided by total population
Poverty Headcount
Poverty Headcount (%)
0
10
20
30
40
50
60
70
Romania Poland
1987-1988 1993-1995
Who are the poor?
Large households Unemployed Low education of the heads Rural areas
Health
Infant Mortality (per 1000)
0
5
10
15
20
25
30
35
Poland Romania
1980
1996
2000
Health
Adult Mortality Rate (per 1000)
0
50
100
150
200
250
300
Male Female Male Female
Poland Romania
1980
1995
1997
1999
2000
2000-2001
Health
Mortality rate (per 100 000 inhabitants) by cause Romania
0,0100,0200,0300,0400,0500,0600,0700,0800,0900,0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Circulatory diseases Tumors Respiratory diseases
Health
Annual average consumption of alcohol (liters per capita)
0,0
2,0
4,0
6,0
8,0
10,0
Poland Romania
1991
1994
1999
Health
Life Expectancy (Years)
67
68
69
70
71
72
73
74
Poland Romania
1980
1995
2000
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