A Political Economy Perspective on Redistribution and Growth in Transition

Poland undertook a rapid and decisive set of political and economic reforms starting in 1989-90, a period that has become known as the big bang. A widely held view is that, in all of the transition economies, the economic upheaval associated with the process of transition has led to substantial increases in inequality, thereby complicating the process of reform. In this paper, we use micro data from the Polish Household Budget Surveys (HBS) to show that the increase in overall income inequality in Poland during the transition was actually quite modest. Our analysis indicates that social transfers played an important role in attenuating the rise in overall income inequality and, by extension, in maintaining the social and political cohesion that was essential for the reform process