Institutional and Political Factors Influence Long-Term Income Inequality in Eastern Europe in the XX Century: Lessons from Bulgaria and Czechoslovakia

Eastern Europe has undergone dramatic socio-economic and political changes during the twentieth century. This makes the region an interesting laboratory for studying inequality and political development in a comparative perspective. Nevertheless, still little is known about the historical evolution of income inequality in the region.

This paper fills that gap by focusing on Bulgaria and the Czech Lands/Czechoslovakia – two countries representing the least and most developed parts of Eastern Europe – through a tumultuous period that included world wars, state formation, the Great Depression, German occupation, and communism.

Relying on newly-constructed datasets and the social tables approach, Stefan Nikolić, Filip Novokmet, and Piotr Paweł Larysz provide new estimates of long-term income inequality in Bulgaria and Czech Lands/Czechoslovakia in the twentieth century.

Key findings:

• Czechoslovakia was significantly more unequal than Bulgaria before 1945.
• Income inequality sharply declined in both countries with the introduction of the communist system after the Second World War, converging to record low levels under socialism.
• Decomposition analysis by social classes reveals that different levels of inequality in the first half of the century were principally driven by higher within social-class inequality in Czechoslovakia, owing to a more stratified industrial society; whereas a low dispersion within the dominant agricultural sector held down the within social-class component in Bulgaria.
• A dramatic fall in total inequality after 1945 was a result of the social revolution that encompassed the virtual disappearance of between social-class inequality and a marked reduction in within social-class inequality.
• The experience of Bulgaria and Czechoslovakia suggests that economic forces significantly affected short-run inequality, but institutional and political factors had the largest impact on long-term inequality in the studied Eastern European countries during the twentieth century.

AUTHORS

• Stefan Nikolić, Loughborough University, United Kingdom
• Filip Novokmet, University of Zagreb, Faculty of Economics and Business, WID Fellow
• Piotr Paweł Larysz, Free University of Berlin, School of Business and Economics