Abstract
We construct the first consistent series on the long-term distribution of income in Poland by combining tax, household survey and national accounts data. We document a U-shaped evolution of inequalities from the end of the nineteenth century until today: (1) inequality was high before WWII; (2) abruptly fell after the introduction of communism in 1947 and stagnated at low levels during the whole communist period; (3) experienced a sharp rise with the return to capitalism in 1989. We find that official survey-based measures strongly under-estimate the rise in inequality since 1989. Our results highlight the prominent role of capital income in driving the U-shaped evolution of top income shares. The unique inequality history of Poland speaks to the central role of institutions and policies in shaping inequality in the long run.
Highlights
Our understanding of the evolution of inequality and its determinants depends on the available empirical evidence
We find that the U-shape development of inequality in Poland was critically shaped by the changes in the institutional structures, as most clearly manifested in unparalleled changes in the labour market and capital ownership arrangements which have accompanied the rise and fall of communism (Sects. 4.3 and 5.2)
We draw a U-shaped evolution of income inequality in Poland throughout the twentieth century
Summary
Our understanding of the evolution of inequality and its determinants depends on the available empirical evidence. We analyse the transition from communism to a market economy by constructing the full income distribution (1983–2015) from combined tax and survey data. Inequality experienced a substantial and steady rise after the fall of communism, which was driven by a sharp increase in the income shares of the top groups within the top decile. The middle 40% and bottom 50% income shares experienced a similar evolution characterized by a stable fall from 1989 until the mid-2000s, and a stagnation afterwards These results remain in contrast to the official survey-based measures, which substantially underestimate the rise of inequality since the end of communism, primarily by underestimating the top of the income distribution.. We point to the central role of country-specific institutions and policies in shaping the U-shaped evolution of inequality in Poland in the long run. The details of the data and estimation are discussed in the Online Appendix
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