How unequal is Russia? Kristina Butaeva candidate of science in economics, research fellow, NES CSDSI, Moscow, PhD student, HKUST, Hong Kong Carnegie Conference September 20, 2018, Moscow Kristina Butaeva How unequal is Russia? 1 / 12
Outline 1 Motivation 2 Data and Measurement 3 Rosstat s Methodology 4 Alternative Estimations 5 Discussion Kristina Butaeva How unequal is Russia? 2 / 12
Inequality Dynamic Gini index, Russia, 1992 2017 0.42 0.4 0.38 0.36 0.34 0.32 0.3 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: Federal State Statistics Service (Rosstat) Kristina Butaeva How unequal is Russia? 3 / 12
Main Inequality Trends The Soviet system featured a highly compressed wage structure. Earned income reflected a very low return to skill and education and other variable determinants of productivity. Productivity at state enterprises was relatively low and there were no legal private enterprises (Remington 2011). Income inequality, wealth inequality and regional inequality increased significantly during the early years of the transition in Russia. The main driving factors of the rising inequality were: - privatization of state enterprises; - the poor quality of state social assistance; - the rapid increase in wage differentiation; - rising unemployment; - steep price inflation (Commander, Tolstopiatenko, Yemtsov 1999). An extreme rise in the 1990s was followed by a brief leveling off, then a slower rise in 2000-2012 and a slow decline in 2012-2017. Kristina Butaeva How unequal is Russia? 4 / 12
Other Countries GDP per capita, PPP, 000 USD, 2014 Norway 60 US Sweden Germany Canada Australia UK Japan 40 EU France Italy ROK Turkey Russia 20 Mexico Brazil Argentina RSA Indonesia China India 0 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 Gini Index, 2010-2014 Source: Federal State Statistics Service (Rosstat), World Bank, CIA Kristina Butaeva How unequal is Russia? 5 / 12
Underestimation Income inequality level is underestimated by Russian officials(aivazian 1997; Commander, Tolstopiatenko, Yemtsov 1999; Aivazian, Kolenikov 2001; Shevyakov, Kiruta 2001,2002; Guriev, Rachinsky 2008; Gimpelson, Treisman 2015; Novokmet, Piketty, Zucman 2018). Moreover, "Russia entered the transition with significant inequality... already by 1992 income inequality was comparable, for example, to that existing in the USA and significantly greater than in the former planned economies of Central Europe.... official figures have grossly understated the degree of inequality."(commander,tolstopiatenko, Yemtsov 1999) An increase in levels of inequality usually demands a response by the state to equalize living standards. What this response might be depends on how one measures, analyses, and explains the patterns of uneven development, in other words, on how one defines the problem. (Bradshaw, Vartapetov 2003). Kristina Butaeva How unequal is Russia? 6 / 12
Data and Measurement Measurement Algorithm: 1 Income distribution identification. Approximation by parametric function(s). Nonparametric evaluation. 2 Income inequality indices calculation. Main Russian Data Sources: The Household Budget Sample Survey (HBS), organized by the Federal State Statistics Service (52 thous. obs.).the sample is representative at the regional level. The Russia Longitudinal Monitoring Survey (RLMS-HSE) (4 thous. obs.), organized by High School of Economics. The sample is representative at the national level. Income tax data on high income taxpayers, provided by the Federal Tax Service. Income brackets (annual income, rubles) are: < 1 mln.; 1-10 mln.; 10-100 mln.; 100-500 mln.; 500-1000 mln.; 1-10 bln.; > 10 bln. Kristina Butaeva How unequal is Russia? 7 / 12
Rosstat s Methodology Data: The Household Budget Sample Survey (HBS) Income distribution identification relies on the assumption that density can be approximated by the 2-parameter lognormal distribution function. Main estimation steps: 1 Lognormal function parameters are identified using the method of moments from the household survey for each Russian region. Note: Mean parameter is calculated as the average money income, obtained from macroeconomic balance, adjusted by the standard deviation from the sample. 2 The empirical distributions, obtained from the sample survey data, are aggregated to the national level. 3 Gini index and "fund"coefficient (R/P 10% ratio) are calculated. Kristina Butaeva How unequal is Russia? 8 / 12
Alternative Estimations Paper Data Density Aivazian 1997 and Aivazian, RLMS-HSE 5 and 3-component Kolenikov 2001 mixture of lognormals Commander, Tolstopiatenko, RLMS-HS Nonparametric Yemtsov 1999 estimation Shevyakov, Kiruta 2001, 2002 HBS Nonparametric estimation Guriev, Rachinsky 2008 Income tax data, Moscow Nonparametric region estimation Butaeva 2017 HBS, income tax data Combined nonparametric-pareto Novokmet, Piketty, Zucman 2018 RLMS, HBS, income tax data, wealth (incl. offshore) data Generalized Pareto Kristina Butaeva How unequal is Russia? 9 / 12
Our Methodology Data: The Household Budget Sample Survey (HBS), income tax data Income distribution identification relies on the assumption that density can be approximated by the combined nonparametric-pareto distribution function. Main estimation steps: 1 Nonparametric estimation of density in the "low"and "medium"income segment, which is calculated from the HBS data. 2 The approximation of "high"income by the Pareto function, whose parameters were identified on the basis of the Federal Tax Service of Russia data. 3 Combination of two evaluated densities in such a way that the mean income in the combined distribution should be equal to the average money income published in the official macro statistics (Macro Balance). 4 Income inequality indices calculation. Kristina Butaeva How unequal is Russia? 10 / 12
What was really happening? 0.65 Gini index, Russia, 1992 2017 0.6 0.55 0.5 0.45 0.4 0.35 0.3 Aivazian 1997 Aivazian, Kolenikov 2001 Commander, Tolstopiatenko, Yemtsov 1999 Shevyakov, Kiruta 2001,2002 Novokmet, Piketty, Zucman 2018 Butaeva 2017 Rosstat 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Kristina Butaeva How unequal is Russia? 11 / 12
Where we are today? GDP per capita, PPP, 000 USD, 2014 60 40 20 0 Sweden Norway Germany Canada Australia UK Japan EU France Italy ROK Turkey Indonesia India Russia (Novokmet, Piketty, Zucman 2018) Russia (Butaeva 2017) Russia(Rosstat) Brazil Argentina Mexico RSA China 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 US Gini Index, 2010-2014 Kristina Butaeva How unequal is Russia? 12 / 12