Using Personal Car Register for Measuring Economic Inequality in Countries with a Large Share of Shadow Economy: Evidence for Latvia
The paper provides a theoretical model, which studies the influence of political institutions and economic inequality on barriers to entry on markets, a level of redistribution, technological progress and economic growth. The model combines two approaches of modern economic literature, endogenous growth models of creative destruction and the approach of the political economy of development, according to which political institutions determine a social choice of economic institutions, which influence long-term growth rates. On the first step of the game agents differing in their incomes, skills and political power, make a social decision about the level of redistribution and the level of barriers to entry on markets. On the second step agents make economic decisions on investment, production and consumption. Political regimes differ in the distribution of votes between agents. The model explains the empirical evidence, suggesting that the transition to democracy in short and middle term reduces inequality in incomes, but does not always lead to the formation of institutions, favoring the equality of opportunities. In the model the influence of political regimes on barriers to entry on markets depends on the initial level of inequality in incomes and skills, and also on the average level of skills. In a society with a high level of inequality in incomes and skills, the existence of a majority coalition, which support a high level of barriers to entry on markets is more probable. This coalition will include the richest agents and the least skilled agents. The results of the model explain different outcomes of democratization process in terms of its effect on barriers to entry on markets and economic growth. The paper also considers four examples of third-wave democratization, which illustrates the results of the model.
Inequality is a part of the economic reality of any society. It is also a constant focus of attention of academic community, from time to time becoming a matter of heated social and political debates. Social scientists consider the growth of income inequality as one of the major socio-economic risks posed by globalization. Inequality issues have acquired a particular importance in connection with the market transition of post-socialist countries, including Russia, where the ‘starting point’ of transformation was the centrally planned economy. The characteristic feature of the transition process has been a sharp increase in income inequality. In the late 1980s Russia, along with the Scandinavian countries was in the group of states with a low level of income inequality. At present, the scale of inequality in Russia is comparable to economies of Latin America. This note aims to provide a comprehensive analysis of income inequality in Russia for the period since the beginning of market reforms. The sources of data are both official macro-statistics and independent sociological surveys.
In this paper we analyze the book that was hailed by Paul Krugman and the Financial Times as the book of the Year of 2014, through the lenses of the Intellectual Capital. Published in 2012, Thomas Piketty’s Capital in the 21st century became a worldwide sensation and best seller because of the depth of its analysis and the controversy created by its findings. In a nutshell Piketty claims that contrary to the neoclassical forecast, inequality in the world might grow, due to a shock between forces of convergence and forces of divergence. Furthermore, Piketty also claims that only redistribution policies can reduce the inequality trend, and calls for a new set of social policies. All this is very impressive but for us what matters the most is how to put IC in the analysis. In this context, we analyze Piketty’s ideas using the concepts and theories on Intellectual Capital (Bonfour and Edvinsson 2005; Edvinsson and Malone, 1997; Kaplan and Norton, 1994), and we also recall what the main theories on inequalities are (Coleman, 1991, Atkinson 1983 or Stiglitz 2012), and about Welfare States (Esping Andersen, 1990). We find that in the history of socio-economic thought, Intellectual Capital and Inequalities have been marching in separate paths: not only the paradigms of analysis are totally different, but only a handful of empirical studies exist that bring together IC and inequalities. The fact is crucial for our paper because we believe that IC in fact increases inequality and explains growing inequality. We also found that Piketty almost does not address IC directly in his entire book, a fact that by itself speaks volumes about the position of IC in the world of socio-economic thought. Pikettys’ analysis, for all its importance, and novelty, is traditional and surprisingly old fashioned when it comes to considering Intangibles. He never uses IC, he seems to be unware of IC analysis. However we also think that most of Piketty’s analysis would gain strength if IC is considered (as we believe it certainly should be) as a major force of inequality in the economy of the 21st century. In the discussion of the paper we point out seven ways in which the inclusion of IC in the analysis could benefit Piketty’s conclusions; the seven ideas relate to Human Capital, super-professionals, billionaires, social policies and development, taxes on wealth, modern slavery, and the rise of political oligarchies in the 21st century. The paper is of limited scope because it is basically theoretical. The paper is original because we don’t know of any other previous study linking Piketty’s book to IC analysis; in this context we believe further efforts should be done in this very relevant area of research.
The paper explores income based and non-monetary dimensions of inequality in Russia. It is argued that globalisation exacerbated inequality at least in three ways. Firstly, the adoption of global neo-liberal economic concepts resulted in an excessive reliance on market forces and a curtailment of social guarantees which produced a rise of wealth and income differentiation and undermined equality of opportunity. Secondly, the liberalisation of foreign trade and global competition gave impetus to a rapid development of the fuel sector exacerbating the structural bias in economy and wage differentiation. Thirdly, globalisation diversified employment opportunities for certain categories of workers with access to the international labour market which offered much better terms of employment as compared to Russian standards. Globalisation provided new opportunities for development and individual success but in the absence of a strong state commitment to equitable provision of social goods it is bound to exacerbate inequality problem.
The evolution of the socio-economic systems is a non-linear process and it contains of a periods with smooth changes and subsequent periods of sharp jump transformation. The overall frame of new intentions opened at the stage of the birth of evolutionary processes, for their prediction requires analysis of the historical background and the risks which closely interfaced with a change in the society. With the collapse of the Soviet Union the newly independent states have been transformational, evolutionary stage in the development from the regional economy (which they actually were) to the economy of the state, the Central and Eastern European countries have experienced a dramatic "drift" to the European Union. This paper discusses the results of almost 25 years of the transformation of these countries. It has been shown that one of the important reasons for the modest economic performance in the post-Soviet space is that newly independent states ignores and does not use in the practice the principles of regional policy and regional modernization. Another important characteristic of this period is the increasing polarization in income levels between the various regions and such trend of growing economic inequality is dominant.
In the later decade Russia continued progress in terms of economic growth and lowering poverty. Yet Russia was much less successful in reducing inequality which skyrocketed after the market liberalization reforms in the early 1990s. Currently inequality in Russia has stabilized at the level which is significantly above the OECD average: the average Gini coefficient for the OECD countries in 2014 was 0.318, while it was 0.416 in Russia. Current macroeconomic environment with continuous recession, which started in 2014 and massive terms of trade shock due to collapse of oil prices, threatens to reverse Russia’s substantial achievements in terms of raising incomes of the population and reducing poverty. This chapter aims to provide a comprehensive analysis of income and wealth inequality in Russia and the impact of the current crisis. The focus throughout the chapter is on the national distribution of income and wealth. In market economies income and wealth serve as good predictors of well-being in other domains, such as social inclusion, education, health, etc.