Driving factors behind the changes in income distribution in the Baltics: income, policy, demography

This paper aims at disentangling factors behind the changes in income inequality and relative poverty in the Baltics. The evaluation of the income, policy and demographic effects was based on counterfactual scenarios constructed using tax-benefit microsimulation and re-weighting techniques. Decomposition showed that income and policy effects were dominant for changes in inequality and relative poverty. The policy effects were inequality- and poverty-reducing before the crisis and after the EU accession as a whole. The income effects for the same periods were inequality- and poverty-increasing. Despite rapid demographic changes, the demographic effect on income inequality and relative poverty was marginal.