05 Nov 19 | News

LISER and the Bank of Lithuania decompose income inequality in Lithuania

The institutions have joined forces to assess the role of policy reforms and of changes in the structure of the labour market, economic returns and demographics in explaining the rise in household income inequality in Lithuania

LISER senior researcher, Denisa M. Sologon, will manage the project and provide methodological support. The analysis will be conducted in collaboration with Mr Nerijus Černiauskas and Prof. Linas Tarasonis from Bank of Lithuania and Vilnius University. The collaboration is envisaged for 3 years (2019 - 2022).

This collaboration is a follow-up of Denisa’s previous SimDeco project funded by National Research Fund in Luxembourg, which developed a microsimulation microeconometric decomposition infrastructure for exploring the drivers of differences in household disposable income inequality between countries and over time.

The project will use this infrastructure[1] to better understand the nature and drivers of the rise in income inequality in Lithuania between 2007 and 2015. During this period, Lithuania faced the global financial crisis, over which household disposable income fluctuated severely and a series of tax and benefit reforms were implemented. Net emigration accelerated the ageing problem, putting additional strain on the income distribution. Our empirical exercise accounts for the distributional effects of the global financial crisis and the subsequent rapid economic recovery. Results show that these effects were substantial and reflected markedly different developments over two periods: changes in the tax and benefit system successfully accommodated a rapid rise in market income inequality due to the crisis during the 2007-2011, but failed during the subsequent years when the rising returns in the labour market significantly increased disposable income inequality. We also find the demographic effects contribute significantly to the rising inequalities in Lithuania.

[1] SOLOGON Denisa, VAN KERM Philippe, LI Jinjing, O'DONOGHUE Cathal. Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom. LISER, 2018, Working Papers n°2018-01, 48 p.