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13/06/2018 research seminar

Between communism and capitalism: Long-term inequality in Poland, 1892-2015

Paweł Bukowski (London School of Economics) and Filip Novokmet (Paris School of Economics)

Discussant: Kacper Pobłocki (EUROREG)

Abstract

This paper presents the long-term income distribution in Poland by combining tax, household survey and national accounts data. We document a U-shaped evolution of inequalities from the end of the 19th century until today. The initial high level was due to the strong concentration of capital income at the top of the distribution. The long-run downward trend was primarily induced by shocks to capital income, from destruction of world wars to changed political and ideological environment. The introduction of communism abruptly reduced inequalities by eliminating private capital income and compressing earnings. Inequality stagnated at low levels during the whole communist period. Yet, after the fall of communism, the Polish inequality experienced a substantial and steady rise and today has reached levels documented in more unequal European countries. Between 1989 and 2015 the top 10% income share increased from 23% to 40% and the top 1% income share from 4% to 14%. Frequently quoted Poland’s transition success has largely benefited top income groups. Over this period, top 1% has captured almost twice as large portion of the total income growth than the bottom 50% (24% versus 13%). While the initial upward adjustment during the transition in the 1990s was induced both by the rise of top labour and capital incomes, the strong rise of top income shares in 2000s was driven solely by the increase in top capital incomes, which make the dominant income source at the top. We relate these developments to processes associated with the new phase in globalisation. Finally, Polish inequality history clearly shows that policies and institutions play an important role in shaping inequality.