Clusterization of post-communist countries of the Central and Eastern Europe by income inequality level

Abstract

Using level of income inequality, the clustering of post-communist countries of the Central and Eastern Europe is carried out by the following indicators: Gini index, share in the national income of the second quintile group, share in the national income of the third quintile group, share in the national income of the fourth quintile group, share in the national income of 10% of the poorest, share in the national income of 20% of the richest.,Сluster analysis (k-means method), in the programming environment Statistica is used as analysis tool and five clusters are obtained. The first cluster includes 8 countries (Albania, Hungary, Poland, Bosnia and Herzegovina, Czech Republic, Сroatia, Russia, Slovakia) is characterized by sufficiently low level of income inequality and can be explained by flow of foreign investment and business transnationalization contributing to the increase of incomes of the main population groups of these countries. The second cluster includes 4 countries (Belarus, Slovenia, Ukraine, Moldova) and is characterized by comparatively low level of income inequality, but high level of property inequality due to heredity, аccumulated wealth та concentration of physical and financial capital by so called «oligarchic clans». The third cluster includes 5 countries (Bulgaria, Montenegro, Macedonia, Romania, Serbia) and is characterized by medium level of income inequality. The fourth and fifth clusters include so called «Baltic tigers» (Latvia, Lihuania, Estonia) and is characterized by high level of income inequality as the result of the occurrence of «excess profits» of financial assets owners. In order to decrease the income inequality in the investigated countries, the following measures are proposed: for the countries of the first cluster to accelerate deconcentration of capital ownership by «spaying» (redemption) of privatized enterprises shares by all categories on preferential terms (so called «ESOP programs»); for the countries of the second cluster to implement progressive tax scale where the tax rate for different groups of population vary depending on the income received and citizens with the lowest incomes (at the level of subsistence minimum or minimum wage) do not pay individual taxes at all; for the countries of the third cluster to cope with «shadow» economy and informal unemployment; for the counties of the fourth and fifth clusters to decrease tax burden on private entrepreneurs and thus stimulate self-employment.