GROWING INEQUALITY AND ITS
IMPACTS:
Bulgaria and Romania
Vassil Tsanov – Economic Research Institute of BAS
Concluding Conference,
Amsterdam, 4-5 Jun 2013
INCOME INEQUALITY DEVELOPMENT
1. Similarities:
- Upward trend in both countries;
- Remarkable increase in the first half of 90s (8-9 Gini points for both countries);
- Periodically increase of inequality (two wages in Bulgaria and 3 waves in Romania).
2. Differences:
- Two periods of declining inequality in Bulgaria (80’s – by 4 Gini points, 1995-2002 – by 5 Gini points);
- Periods of unchanged inequality in Romania (1991-1994, 1995-2000).
The evolution of inequality in Bulgaria and Romania
0.4
0.35
0.3
Bulgaria
Romania
0.25
0.2
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
0.15
Source: Transmonee, based on NIS data;
S. Frederick, 2011, SWIID, Version 3.1.
INCOME INEQUALITY DEVELOPMENT
3. Key determinants of inequality:
- Similar driving forces for Bulgaria and Romania:
- The transition to a market economy (reforms, privatization, etc.);
- The pattern of economic growth;
- External migration;
- Ethnic differences.
- Country specific features:
Bulgaria:
- Incomes and pension policy;
- Taxation policy.
Romania:
- Non-transparent privatization;
- Corruption and shadow economy;
- Inefficient social and income policy.
Social impacts of inequality
1. 
Inequality and poverty relationship
- 
- 
Joint movement of Gini and poverty in Bulgaria;
Joint movement of Gini and Poverty in Romania in the period 2007-2010.
Inequality and poverty trends in Bulgaria and Romania
24
27
0.38
0.36
22
%
0.28
Gini
16
%
0.3
0.37
0.36
0.35
23
0.32
18
0.38
25
0.34
20
Romania
0.34
0.33
21
0.32
19
0.31
0.26
12
10
0.24
17
0.22
15
0.2
1998
2000
2002
2004
Poverty rate
2006
2008
2010
Gini
Source: National Statistical Institute, Eurostat (EU-SILC).
0.3
0.29
0.28
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
14
Poverty rate
Gini
Gini
Bulgaria
Social impacts of inequality
2. Patterns and trend in family formation:
Similarities:
- downward trend in fertility rate passing by periods of decrease and increase in both countries;
- stronger dependency from the economic development than from the inequality;
- changes in the family model (from families, formed on the marital basis, into families based
on extramarital co-habitation;
- strong decline of number of marriages while the number of divorces remains stable.
Differences:
- stronger impact of economic development on fertility rate in Bulgaria;
- stronger decline of marriages in Bulgaria.
Fertility rate and Gini
Bulgaria
Romania
Gini
0.3
1.6
0.25
1.4
0.2
1.2
1
0.15
Fertility rate
Source: Eurostat
Gini
0.36
2.2
Fertility rate
1.8
0.4
2.4
0.35
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
Fertility rate
2
2.6
2.0
0.32
1.8
0.28
1.6
1.4
0.24
1.2
1.0
0.2
Fertility rate
Gini
Gini
0.4
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
2.2
Social impacts of inequality
3. Health inequality:
More similarities than differences:
- life expectancy in both countries follow upward trend during the
last 30 years passing by periods of increase and decrease;
- growing gender difference in life expectancy;
- life expectancy closely follows the trend of economic development;
- majority of Bulgarian and Romanian population self-evaluated
their health status as good/very good.
Differences appeared in details.
Social impacts of inequality
4. Hosing tenure patterns
- the housing pattern in Bulgaria and Romania is very similar and not
differ to the other CEEC:
•  high share of private houses without mortgage and loans;
•  minor portion of tenants;
•  majority of tenants have municipal or institutional accommodation with
regulated rent below market prices
- income inequality does not significantly affect the tenure status of poor
and not poor;
- high percentage of poor people live in own houses with no mortgage or
loans;
- bigger percentage of poor people paying rent below market prices.
Differences:
- higher share of private house in Romania (95-96% vrs. 90-91% in Bulgaria);
- lower level of the housing cost overburden rate in Bulgaria (Bulgaria - 5.9% in
2009; Romania – 15% in 2009).
Social impacts of inequality
5. Live satisfaction and happiness:
- very low level of life satisfaction and happiness in both
countries (different data sources depict the same picture);
- more people are extremely dissatisfied than extremely satisfied;
- a trail tendency to improvement.
Political impacts of inequality
1. Political and civil participation:
- downward trends in voter turnout at parliamentary, presidential and
local elections;
- low participation in civil organizations;
- unclear link between inequality and voter turnout (while the Gini
coefficient fluctuated, voter turnout constantly declined).
2. Trust in public institutions:
- relatively low trust in the Parliament, Government and judicial system;
- confidence in public institutions has declined during the last decade;
- confidence in Government is strongly affected by electoral cycle;
- no clear link between confidence in public institution and income inequality.
Political impacts of inequality
Trust in Government
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2004
2005
2006
2007
Bulgaria
Source: Eurobarometers
2008
2009
2010
Romania
2011
2012
Political impacts of inequality
3. Political values and legitimacy
- Left-right wing position:
•  Unclear identification in Romania;
•  Collapse of the bipolar political model in Bulgaria after 2000 (outflow
from the right to the centre, while the left remained stable);
•  Probably there is relationship between inequality and Left-Right-Centre
winners at the elections.
Percentage of votes for the winners in elections and inequality, 1990-2009
60.0
0.4
50.0
0.35
0.3
Gini
%
40.0
30.0
0.25
20.0
ig
ht
/c
en
tre
-l
ef
t
20
09
-r
20
05
ce
nt
re
20
01
-r
19
97
19
94
19
91
19
90
ig
ht
0.15
-l
ef
t
0.0
-ri
gh
t
0.2
-le
ft
10.0
Source: Cental Election Committee. Results from the elections in Bulgaria.
Political impacts of inequality
- attitudes towards inequality and poverty:
•  High sensitivity to inequality, poverty and social policy:
–  Over 70 per cent of Bulgarians agreed that inequality in the country is
high;
–  Over 91 per cent of Romanians agreed that inequality in the country is
high;
–  Over 80 per cent of Bulgarians and Romanians think that the
Government should take measures to reduce income inequality.
Effectiveness of the policies in combating
inequality
1. Minimum wage policy:
Similarities:
- an increase of the MW;
- relatively low proportion to the AW (Bulgaria – around 36-37%; Romania – around 30-32%.
Differences:
- Romania – no effects on the income inequality;
- Bulgaria – remarkable interaction with income inequality.
Dynamics of the real minimum wage and Gini in Bulgaria and Romania
Romania
60
40
20
0
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
%
80
Real MW
GINI
Source: National Statistical Institute.
39
250
37
35
200
33
150
31
100
29
50
27
0
25
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
100
PPS
0.38
0.36
0.34
0.32
0.3
0.28
0.26
0.24
0.22
0.2
Gini
120
300
MW (PPS)
Gini
Gini
Bulgaria
Effectiveness of the policies in combating
inequality
- Effects on income inequality
Bulgaria
Romania
30
39
37
28
Gini
Gini
35
26
33
31
24
29
22
27
-40
-30
-20
-10
0
MW rates of growth
10
20
30
-20
-10
0
10
20
30
MW growth
40
50
60
70
80
Effectiveness of policy in combating
inequality
2. Taxation policy
- cyclical development depending from taxation policy and economic development;
- relatively low total tax revenue (fluctuate in a range of 28-33% from GDP with a strong
decline after 2008);
- taxation policy is orientated to increase the indirect taxes at a expense of direct taxation;
- introduction of a flat-rate income tax (Bulgaria -10%, Romania – 16%).
Total tax revenue as % of GDP
34.0
32.0
%
30.0
28.0
26.0
24.0
22.0
1995
1997
1999
2001
Bulgaria
Source: Eurostat
2003
2005
Romania
2007
2009
Effectiveness of policy in combating
inequality
- The impact of taxation policy on income inequality in Bulgaria
- strong decline during the last decade.
Difference between Gini gross and Gini net coefficient, 1980-2010
9
8
7
6
5
4
3
2
1
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
0
Source: Own calculations.
Effectiveness of policy in combating
inequality
3. Effects of pension and social assistance policy on inequality
in Bulgaria
- pension policy has a positive effect on reducing inequality;
- social assistance policy has negative impact on inequality.
Evolution of ratios “AP/AW” and “GMI/AW”, 1990-2010
60
50
30
20
GMI/AW
Source: National Statistical Institute.
AP/AW
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
10
1990
%
40
Conclusions
1. Income inequality in Bulgaria and Romania grows during
the last three decades passing through the periods of
increase and decrease.
2. Similar determinants of inequality with specific features
in income policy and privatization processes.
3. The development of poverty risk is more closely related
to the evolution of economic inequality.
4. The evolution of family formation, housing patterns,
health status, and satisfaction in both countries are more
correlated with economic development than income
inequality.
5. Similar trends and impacts of inequality on political
development.
6. Different impacts of social policy on combating
inequality.
Thank you for your attention