Channels of redistribution: Inequality and poverty in the Russian transition

Abstract

Contrary to popular perception, Russia entered the transition with significant inequality. Using the large Russian Longitudinal Monitoring Survey dataset, we demonstrate that inequality has subsequently risen yet further and by end‐1996 was roughly comparable to inequality in Mexico, Colombia or Malaysia. Driving this increase has been not only wealth transfers through privatization but also changes in government expenditure and a sharp growth in earnings dispersion. There has been a large, associated shift in the structure of income. The paper also looks at the incidence and depth of poverty over the period 1992‐96. At the start of transition, roughly half the population of households fell below the poverty line. While this has subsequently declined, at end‐1996 nearly 40 per cent of households were below the poverty line and a substantial stratum of households were locked in chronic poverty.