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Inequality across Transition Countries: The Demand for and Supply of Income Redistribution

  • Author(s): Finley, Katelyn
  • Advisor(s): Kaminski, Marek
  • et al.
Abstract

While under the communist regime, states in Eastern Europe and Central Asia shared similarly low levels of income inequality. When the regime collapsed, levels began to rise and vary substantially across countries. While many of the Central and Eastern European countries managed to maintain low levels of inequality, many of the former Soviet Union countries in Eurasia became fairly unequal. In this dissertation, I ask: What explains the variation in levels of inequality across former communist countries since communism’s collapse?

In answering this question, I pay particular attention to the varying levels of redistribution across former communist countries. While states in Central and Eastern Europe typically have lower levels of net (post-tax, post-transfer) inequality than former Soviet Union countries, they do not have lower levels of market (pre-tax, pre-transfer) inequality. The variation in redistributive policies across states is consequently a key factor explaining the variation in levels of income inequality that citizens experience. I argue that Central and Eastern European states maintained fairly low levels of inequality throughout the market transition because their democratic governance structure motivated higher levels of income redistribution. Democracy shapes both the demand for and supply of redistribution.

In using large-N cross-national survey data, I find that democratic institutions significantly shape people’s perceptions of distributional fairness. In particular, a free media makes people more critical of the notion that the path to economic success as fair. People’s perceptions of whether success is fair in turn significantly shape their demand for income redistribution. I therefore argue that democracy indirectly shapes the demand for distribution by affecting the way people perceive some aspects of distributional fairness.

Using a time series, cross-sectional analysis, I also find that democracy significantly shapes the supply of redistributive policies. Several features of the democratic political system are necessary for high levels of redistribution. However, although democracy is associated with higher levels of redistribution, I also argue democratization is just one part of the complex story explaining inequality dynamics in the post-communist context. It combines with other factors in facilitating lower levels of inequality.

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