Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics

Nerijus Černiauskas, Denisa Sologon, Cathal O'Donoghue, Linas Tarasonis

Research output: Working paper

Abstract

We model the household disposable income distribution in Lithuania and explore the drivers of the increase in income inequality between 2007 and 2015. We quantify the contributions of four factors to changes in the disposable income distribution: (i) demographics; (ii) labour market structure; (ii) returns and prices; and (iv) tax-benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two sub-periods: changes in the tax and benefit system successfully accommodated a rapid rise in market income inequality due to the global financial crisis during 2007-2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labour and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to
the increase of income inequality in Lithuania.
Original languageEnglish
PublisherBank of Lithuania
Number of pages48
Publication statusPublished - 2020

Publication series

NameWorking Paper Series
PublisherBank of Lithuania
No.71/2020
ISSN (Electronic)2029-0446

Keywords

  • income distribution
  • overtime comparison
  • austerity
  • crisis
  • tax-benefit policies
  • microsimulation
  • decomposition
  • inequalities

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