Income inequality and poverty in Poland and Romania Daniel Mortazavi Isabel David João Sousa Renato 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

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

Comparison of GDP Distribution

Entrepreneurial Activity

Population Income Economic Importance of Social Transfers Population income by sources (%GDP)

Structure of Employment Sectors 1989

Structure of Employment Sectors 1997

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

Inequality distribution Changes in Quintile Shares between and : Moderate Regressive

Disparity among social groups 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, Concentration Coefficients of Wages, Cash Social Transfers, and Non-wage Private Sector Income in Poland,

Evolution of welfare systems

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

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

Who are the poor? Large households Unemployed Low education of the heads Rural areas

Health