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Income inequality and redistribution in Lithuania: The role of policy, labor market, income, and demographics

Author

Listed:
  • Nerijus Cerniauskas

    (Vilniaus Universitetas)

  • Denisa Sologon

    (Luxembourg Institute of Socio-Economic Research (LISER, CEPS/INSTEAD))

  • Cathal O'Donoghue

    (National University of Ireland)

  • Linas Tarasonis

    (Vilniaus Universitetas
    Lietuvos Bankas)

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) labor market structure; (iii) returns and prices; and (iv) tax–benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two subperiods: changes in the tax and benefit system cushioned a rapid rise in market income inequality because of the global financial crisis during 2007–2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labor and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to the increase in income inequality in Lithuania.

Suggested Citation

  • Nerijus Cerniauskas & Denisa Sologon & Cathal O'Donoghue & Linas Tarasonis, 2021. "Income inequality and redistribution in Lithuania: The role of policy, labor market, income, and demographics," GRAPE Working Papers 60, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:60
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    Cited by:

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    2. Kristina Stefanova, 2024. "Public Sector Impact on Income Inequality in CEE Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 78-97.
    3. Denisa M. Sologon & Cathal O’Donoghue & Iryna Kyzyma & Jinjing Li & Jules Linden & Raymond Wagener, 2022. "The COVID-19 resilience of a continental welfare regime - nowcasting the distributional impact of the crisis," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(4), pages 777-809, December.
    4. Karina Doorley & Jan Gromadzki & Piotr Lewandowski & Dora Tuda & Philippe Van Kerm, 2023. "Automation and income inequality in Europe," IBS Working Papers 06/2023, Instytut Badan Strukturalnych.
    5. Karina Doorley & Cathal O’Donoghue & Denisa M. Sologon, 2022. "The Gender Gap in Income and the COVID-19 Pandemic in Ireland," Social Sciences, MDPI, vol. 11(7), pages 1-23, July.
    6. O'Donoghue, Cathal & Sologon, Denisa Maria, 2023. "The Transformation of Public Policy Analysis in Times of Crisis – A Microsimulation-Nowcasting Method Using Big Data," IZA Discussion Papers 15937, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    income inequality; redistribution; decompositions; microsimulation; tax-benefit policies.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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