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

15. 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).

16. Gini Coefficient

17. Gini Coefficient - Evolution

18. Inequality distribution Changes in Quintile Shares between 1987-88 and 1993-94: Moderate Regressive

19. Disparity among social groups Change in Real and per Capita Income of Worker, Farmer and Pensioner Households (Workers’ households real per capita income in 1987=100)

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

23. 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

24. 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

28. Poverty

29. Poverty Headcount • Definition: number of people falling below the poverty line, divided by total population

30. Poverty Headcount

31. Who are the poor? • Large households • Unemployed • Low education of the heads • Rural areas

32. Health

33. Health

34. Health

35. Health

36. Health