Transcript Income: Poland and Romania

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
State employment as a porportion of the labour force
(1988)
Romania
95,20%
Poland
70,40%
Socialist average
90%
OECD avarage
21,20%
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:



GDP Evolution: Growth and Decline
Private Entrepreneurialship
Population Income


Poland and Romania
Social Transfers
Structure of Employment Sectors
1989 & 1997
Real GDP Evolution
Real GDP Evolution
Years
of GDP
Did GDP (Average Annual Rate
Fall After
Some
Growth? of GDP Growth)
Countries Decline
Poland
2 no
Romania
4 yes
90-93
-3.1
-6.4
94-97
6.3
2.1
1997
GDP
index
90-97
1.6
-2.2
(1989 =
100)
Rank
111.8
82.4
1
7
Comparison of GDP
Distribution
Entrepreneurial Activity
Population Income
Economic Importance of Social Transfers
Population income by sources (%GDP)
Poland
Romania
Social transfers in
Non-wage private kind (health and
Wages Cash social transfers sector income education)
Total
1987-88 1993-94 1987-88 1993-94 1987-88 1993-94 1987-88 1993-94 1987-88 1993-94
27 32
9
20
22 25
7
9
65 85
35 33
9
9
3
14
4
5
52 61
Structure of Employment
Sectors
1989
Sector
Bulgaria
Agriculture
Mining
Manufacturi
ng
Electricity,
gas, water
Constructio
n
T rade
T ransportati
on
Finance
Community
services
RI-South
RI-North
Poland
19.0
2.6
34.9
Czech
Republic
11.7
3.6
34.0
26.8
3.4
24.5
Romania Slovakia South
OECD
27.9
13.8
10.7
2.3
1.0
0.4
33.0
32.1
22.0
North
OECD
4.1
1.0
26.3
0.8
1.4
1.1
1.2
1.6
0.9
1.1
7.8
7.3
7.8
7.0
11.6
8.1
6.4
9.2
6.8
11.5
6.5
8.9
7.2
5.9
6.9
11.1
6.4
19.3
6.0
17.4
6.0
0.6
18.4
0.5
23.5
1.0
19.3
0.3
15.3
0.4
22.0
6.1
26.5
8.6
28.7
24.2
27.3
17.2
19.6
23.0
27.7
31.3
33.4
18.4
21.6
10.0
10.0
-
Source: OECD-Labor Force Statistics (1998) for OECD countries, and authors’ comput
Structure of Employment
Sectors
1997
Sector
Bulgaria
Hungary Poland
Agricult ure
24.3
2.0
23.2
7.9
0.7
23.7
1.1
Mining
Manufact urin
g
Elect ricit y,
gas, wat er
Const ruct ion
T rade
T ransport at i
on
Finance
Communit y
services
RI-Sout h
RI-Nort h
RI-Nort h-89
20.5
2.5
21.0
Romania Slovakia South
OECD
37.5
8.6
9.3
2.0
1.7
0.5
23.0
26.1
20.8
North
OECD
3.0
0.3
19.2
2.7
1.8
2.1
2.5
0.9
0.7
4.9
12.4
7.7
6.0
16.9
8.5
6.6
14.5
6.2
4.9
10.3
5.6
8.9
14.4
7.4
8.3
21.2
5.6
7.2
18.6
6.2
1.6
21.8
2.3
31.3
2.1
24.8
0.8
13.7
1.4
29.0
7.7
25.7
11.2
30.
21.2
28.9
27.3
13.4
15.4
19.6
14.9
22.6
27.7
33.1
40.0
33.4
13.8
18.6
21.6
12.0
-
9.3
Source: OECD-Labor Force Statistics (1998) for OECD countries, and authors’ comp
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
Romania
Poland
1987-88
23
26
1993-95
29
28
1996
30,3
32,8
1997
42,2
33,4
1998
31,1
31,6
1999
29,3
2000
30,6
Inequality distribution
Changes in Quintile Shares between 1987-88 and 1993-94:
Moderate Regressive
Disparity among social groups
Country
1987-88 1993-94 Change in relative position
Poland
Workers
107
85
P>W>F
Farmers
121
77
Pensioners
95
89
Romania
Workers
100
76
F>P>W
Farmers
74
59
Pensioners
88
68
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, 1987-95
Concentration Coefficients of Wages, Cash
Social Transfers, and Non-wage Private
Sector Income in Poland, 1987-95
Evolution of welfare systems
Total Social Expenditures Romania
25
25
20
20
% of GDP
% of GDP
Total Social Expenditures Poland
15
10
15
10
5
5
0
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Evolution of welfare systems
Romania
Poland
16
% of GDP
% of GDP
14
12
10
8
6
4
2
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Pensions
Unemployment benefits
Other Benefits
16
14
12
10
8
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Pensions
Unemployment benefits
Health Insurance
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
Taxation System: Poland

These programs are being criticized


Too costly
They turned out to be extremely regressive
benefiting the high income tax payers
I
II
III
Normal Income With exemptions
Tax Brackets
allowed
40%
25%
30%
16%
19%
14%
Taxation System: Poland

Poland is introducing a fiscal reform

Gradual reduction of corporate income tax





In
In
In
In
2000
2001
2002
2004
to
to
to
to
30%
28%
24%
22%
VAT is being changed according to EU rules
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
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
Poverty
Poverty Headcount

Definition: number of people falling
below the poverty line, divided by total
population
Poverty Headcount
Poverty Headcount (%)
70
60
50
40
30
20
10
0
Romania
Poland
1987-1988
1993-1995
Who are the poor?




Large households
Unemployed
Low education of the heads
Rural areas
Health
Infant Mortality (per 1000)
35
30
25
1980
20
1996
15
2000
10
5
0
Poland
Romania
Health
Adult Mortality Rate (per 1000)
300
1980
250
1995
200
1997
150
1999
100
2000
50
2000-2001
0
Male
Female
Poland
Male
Female
Romania
Health
Mortality rate (per 100 000 inhabitants) by cause Romania
900,0
800,0
700,0
600,0
500,0
400,0
300,0
200,0
100,0
0,0
1991
1992
1993
1994
Circulatory diseases
1995
1996
Tumors
1997
1998
1999
Respiratory diseases
2000
Health
Annual average consumption of alcohol (liters per
capita)
10,0
8,0
1991
6,0
1994
4,0
1999
2,0
0,0
Poland
Romania
Health
Life Expectancy (Years)
74
73
72
1980
71
1995
70
2000
69
68
67
Poland
Romania