Income inequality and poverty in Poland and Romania

1
Income inequality and poverty in Poland and
Romania

• Daniel Mortazavi
• Isabel David
• João Sousa
• Renato Alves

2
General background
3
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

4
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

5
Income
6
Income Poland and Romania

• GDP Evolution Growth and Decline
• Private Entrepreneurialship
• Population Income
• Social Transfers
• Structure of Employment Sectors 1989 1997

7
Real GDP Evolution
8
Real GDP Evolution
Real GDP Evolution
9
Comparison of GDP Distribution
10
Entrepreneurial Activity
11
Population IncomeEconomic Importance of Social
Transfers
Population income by sources (GDP)
12
Structure of Employment Sectors 1989
13
Structure of Employment Sectors 1997
14
Inequality
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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).

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Gini Coefficient
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Gini Coefficient - Evolution
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Inequality distribution
Changes in Quintile Shares between 1987-88 and
1993-94 Moderate Regressive
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Disparity among social groups
Change in Real and per Capita Income of Worker,
Farmer and Pensioner Households (Workers
households real per capita income in 1987100)
20
Composition of Disposable Income
Composition of Disposable Income in Poland,
1987-95
Concentration Coefficients of Wages, Cash Social
Transfers, and Non-wage Private Sector Income in
Poland, 1987-95
21
Evolution of welfare systems
22
Evolution of welfare systems
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Taxation System Poland

• 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

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Taxation System Poland

• These programs are being criticized
• Too costly
• They turned out to be extremely regressive
  benefiting the high income tax payers

25
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

26
Taxation System Romania

• 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

27
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

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Poverty
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Poverty Headcount

• Definition number of people falling below the
  poverty line, divided by total population

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Poverty Headcount
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Who are the poor?

• Large households
• Unemployed
• Low education of the heads
• Rural areas

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Health
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Health
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Health
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Health
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Health