Discussing transition and wealth inequality in Tallinn
It is not sensible to do science which only applies in one country or region of the world. Notwithstanding, people who studied transition economies their entire professional life have simply richer insights than anybody else. This is why we were extremely privileged and excited to show our paper on economic transition and wealth inequality during the 14th Conference "Evolving Challenges in European Economies" in occasionally sunny Tallinn this year. The event was organized by Aaro Hazak, who builds a wonderful network out of Finland and Estonia, focusing on interdisciplinary study of economic decision-making. The keynote was given by Ariel Rubinstein. And our paper received very valuable feedback from Merike Kukk, Jannika Merrikul, Alari Paulus, Linas Tarasonis and other participants of this event. We are very grateful, as all these comments help us improve the paper.
In this paper we study the evolution of wealth inequality in an economy undergoing structural change. Economic intuition hints that structural change should imply increased income inequality, at least transitory. Economic intuition is more ambiguous for the effects on wealth inequality. On the one hand, increased dispersion in incomes implies increased dispersion in the ability to accumulate wealth across individuals. On the other hand, workers experience greater uncertainty which may push them to more precautionary savings, which works towards equalizing wealth distribution. The net effect of these two opposing forces is essentially an empirical question. We build an overlapping generations model which features heterogeneous sectors and workers. Using this model, we quantify the role of demographics and the structural change in the evolution of wealth inequality in Poland as of 1990.