Poverty and Inequality in Transition by ZyECgmN

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									         Making Transition Work
         for Everyone: Poverty
         and Inequality in ECA




Poor woman with winter food
supply; rural Tajikistan
                            Why a Study on Poverty
                            and Inequality?
                             Beginning of transition, we expected
Poverty is pain; it feels     poverty would increase, but be shallow
like a disease. It
attacks a person not
                              and short-lived…but:
only materially but also
morally. It eats away        Poverty increased dramatically: from 2%
one’s dignity and             in 1988 to an estimated 21% in 1998!
drives one into total
despair (a woman from        Inequality also increased: five CIS
Moldova)
                              countries have levels of inequality
                              approaching the most unequal countries
                              in Latin America (greater than Peru)
                   The Experience of
                   Poverty in ECA
                                       Fall in living standards in context
                                        of profound changes in political,
                                        social and economic life
                                       Voices of poor: lack of income or
                                        income insecurity is number one
                                        concern
                                       Psychological pain as devastating
                                        as material hardship
Imagine traveling along in a car       Poverty is not easy to discuss
for seventy years, and suddenly the
road disappears and your car
crashes. You don’t know where to
go --Kyrgyz Republic
                                                                              Headcount Index (at $2.15 per person
                                                                                    per day in 1996 PPP)
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                                                                                                                                                                                      How Many Poor?




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                                                                                                                                       Transition Countries




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relative poverty is a problem everywhere
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                                                                                                               Figure 1: Percentage of Population Living in Absolute Poverty in ECA




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Absolute poverty significant in IDA countries and Russia; but




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               Who is at Greatest Risk?
                             Households with unemployed heads
                              (especially in Central Europe)
                             Multi-child households but NOT the
                              elderly
                             Rural households (especially in
                              Central Europe)
                             Some localized areas or regions
                              (e.g. Northeast Romania; East
                              Ukraine; Imereti region Georgia ).
Unemployed man engaged in
petty trade; Armenia.
                            But the majority of the poor are working,
                              and live in urban areas.
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                                                                     Relative poverty risk of children and elderly




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                                                                                                                     elderly, especially in Central
                                                                                                                     Children are at greater risk than




                                         Elderly
                                         Children
                            Capabilities of the Poor
                            Endangered
My children cannot go to school        In some countries poor
because, without them, I wouldn’t
be able to gather enough                children not attending school,
cardboard every day (Moldova).          poor areas not well served
                                       Corruption a growing problem
                                        in health and in education,
                                        hurts the poor most
                                       Insufficient attention to
                                        nutritional deficiencies,
                                        communicable diseases

Poor woman with stomach cancer,
Armenia. Cannot afford health care.
                                                                              Why Did Poverty
                                                                              Increase?
                                                                                          Output collapse key-- but
      Moldova
        Russia                                                                             magnitude varied across region
  Kazakhstan
       Azerbaijan
         Lithuania
           Bulgaria
                                                                                          Collapse of output experienced by
                 Kyrgyzstan
                       Romania
                                                                                           households as decline in
                          Latvia
                          Estonia
                              Georgia
                                                                                           employment and wages
                                          Hungary
                                                    Slovakia
                                                                   Czech Republic
                                                                                          ….but also as a fall in social
                                                                      Poland


-80              -60             -40          -20              0
                                                                         Slovenia

                                                                         20         40
                                                                                           transfers (especially in CIS)
                                 %Change in Real Wages, 1990-98
                                                                                          Increasing inequality also
Decline output  Falling Wages                                                             important factor
and Incomes (especially marked
in CIS).
     C                           Gini coefficient (percent)
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                                                                                                                       FSU Countries



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             U              s
                                                                                During Transition




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                                                                                                                       in Central Europe, Larger in




                             n
                                                              Changes in Income Inequality in Selected ECA Countries
                                                                                                                       Increases in Inequality: Small




                                          1996-99
                                                    1987-90
What Explains the Rise in
Inequality?
        Not reforms per se  countries
         further on reform path have lower
         inequality
        In CSB, rising education
         premiums and emergence of
         entrepreneurs …. but taxes and
         transfers dampened increase
        But not the case in the CIS.
    What About the Increase in
    Inequality in the CIS?
   Rising education premiums explain very little of
    inequality in CIS.
   Causes lie elsewhere:
      widespread corruption and rents
      capture of the state by vested interests that
       have influenced policy to their advantage
      resulting collapse of formal wages and
       income opportunities
   Result: polarized society where entrenched
    economic interests control policy agenda 
    leads to very unequal outcomes .
Public Action to Reduce
Poverty
   Large variation in policy, performance,
    income and vulnerabilities across
    countries
   Forward-looking policy agenda has to be
    country and region-specific
   But common themes exist; and less
    advanced reformers have much to gain
    from experience of those further on the
    transition path.
          Key Building Blocks
   Build effective and      Tackle state capture; build
    inclusive institutions     communities; give voice

   Provide conditions for   Stimulate labor demand and
                               private sector environment;
    shared growth              build capabilities of the poor

   Protect the poor and      Help the destitute; ensure
                               long-run equality of
    vulnerable                 opportunity for poor children;
                               balance protection, efficiency
   Reduce inequality and    Reduce rents;measure to aid
    enhance opportunities     those at bottom, lagging
    for the poorest           regions; anti-discrimination
Advanced Reformer; High Income
 (e.g. Poland, Hungary, Czech Rep.)

 Shared growth    Improve competition          Reduce contingent
                   policies                      liabilities
                  Privatize infrastructure     Enhance labor mobility
                   monopolies/utilities         Deepen financial sector
 Capabilities     Rationalize personnel        Upgrade quality of
                   and facilities                health and education
                  Improve incentives for       Legitimize private
                   cost containment              financing & protect
                                                 access of poor
 Protection         Pension reform (multi-  Means-tested cash
                     pillar w/ minimum)          benefits.. Priorities:
                    Reform disability           poor children; rural.
                     pensions (e.g. Poland)  De-institutionalization
 Institutions/      Support environment        Anti-discrimination
                     for NGOs, communities  Decentralization, but
 Equality           “Raise” the bottom: skill   address regional
                     upgrading; min. wages       disparities
Less Advanced Reformer;
Middle Income (e.g Russia, Romania)
Shared growth    Introduce hard budget        Achieve sustainable
                  constraints                   fiscal deficits
                 Remove barriers              Reorient public exp. to
                  entry/exit (SMEs)             social sectors and
                 Agriculture/land reform       infrastructure
Capabilities     Rationalize personnel        Upgrade quality of
                  and facilities                health and education
                 Improve incentives for       Legitimize private
                  cost containment              financing & protect
                                                access of poor
Protection       Reformed PAYG with           Categorical benefits
                  benefit/contribution link     (means-tested?)
                  minimum pov. benefit         Eliminate privileges/
                 Replace UE Insurance          replace utility subsidies
                  with flat/severance           (cash benefit/lifeline)
                  benefit                      De-institutionalization
Institutions/    Reduce corruption            Build civil society
                 Strengthen institutional     Support communities
Equality          checks and balances;         Anti-discrimination
                  political accountability     Improve tax collection
Less Advanced Reformer;
Lower Income (e.g. Caucasus, Tajikistan)
   Shared growth    Introduce hard budget       Increase revenues
                     constraints                 Reorient public exp. to
                    Remove barriers              social sectors and
                     entry/exit (SMEs)            infrastructure
                    Agriculture/land reform
   Capabilities     Rationalize personnel       Upgrade quality of
                     and facilities               health and education
                    Increase spending &         Legitimize private
                     improve incentives for       financing & protect
                     cost containment             access of poor
   Protection       Flat pension (prepare       Limited cash benefit
                     for intro funded pillar)    Self-targeting
                    Replace UE Insurance        Eliminate privileges
                     with UE Assistance          Introduce lifeline .
   Institutions/    Reduce corruption           Build civil society
                    Strengthen political        Support communities
   Equality          accountability;             Anti-discrimination
                     institutional checks and    Improve tax collection/
                     balances                     compliance

								
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