The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper challenges the conventional wisdom that inequality in Poland increased markedly during the economic transition. Income and consumption inequality actually declined in 1990-92 and rose only moderately above pre-transition levels by 1997. However, inequality in labor earnings increased markedly and consistently during 1990-97. Social transfer mechanisms, including pensions, helped mitigate increases in overall inequality and poverty. More importantly, these transfer mechanisms were well-designed to reduce political resistance to market-oriented reforms in the early years of transition, paving the way for rapid growth. Cross-country evidence from transition economies is consistent with this interpretation and with recent literature suggesting that inequality-reducing redistribution can enhance growth.