Factors behind the changes in income distribution in the Baltics: income, policy, demography

Abstract

ABSTRACTThis article aims at disentangling the factors behind changes in income inequality and relative poverty in the Baltic states. An evaluation of income, policy, and demographic effects was based on counterfactual scenarios constructed using tax-benefit microsimulation and reweighting techniques. Decomposition showed that income and policy effects were dominant for changes in inequality and relative poverty. The policy effects were inequality- and poverty-reducing after EU accession and before the 2008 financial crisis and as a whole. The income effects for the same periods were inequality- and poverty-increasing. Despite rapid demographic changes, the demographic effect on income inequality and relative poverty was marginal.