Distributional Consequences of Political Freedom: Inequality in Transition Countries

TL;DR

This study investigates how democratization in post-socialist countries from 1991 to 2016 influenced income inequality, revealing a pro-equality effect mainly after 2001, benefiting lower income groups.

Contribution

It provides empirical evidence on the relationship between democratization and income distribution changes in transition countries, highlighting a shift towards equality after 2001.

Findings

Democratization had little impact on inequality in the 1990s.

Post-2001, democratization benefited lower income deciles.

The top income share decreased as lower deciles gained more.

Abstract

This article addresses the origins of income inequality in post-socialist countries from Central and Eastern Europe and Central Asia, from 1991 to 2016. The aim is to analyze the relationship between democracy and income inequality. In previous studies, this topic has led to ambiguous findings, especially in the context of the group of countries we are focusing on. We examine whether the process of democratization cooccurred with changes in income distribution over the entire period under study, and its impact on individual income deciles to determine who benefited most from the new system. The obtained results allowed us to confirm that the actual relationship between democratization and income inequality did not exist, or at most was illusory in the 1990s, but it was present, relevant, and had a proequality character between 2001 and 2016. During that period, the development of the democratic system benefited at least 80\% of the lower part of the income distribution, at the expense especially of the top deciles share of total income. Those results confirmed that democratization positively affected the shares of lower income deciles in postsocialist countries.