Inequality in Russia over time and over the life cycle

• Published date: 01 April 2024
• Author: Maksym Bryukhanov,Dmytro Hryshko
• Date: 01 April 2024
• DOI: http://doi.org/10.1111/sjoe.12556

Scand. J. of Economics 126(2), 289–319, 2024

DOI: 10.1111/sjoe.12556

Inequality in Russia over time and over the

life cycle

Maksym Bryukhanov

mbryukhanov@gmail.com

Dmytro Hryshko

University of Alberta, Edmonton AB, T6G 2H4, Canada

dhryshko@ualberta.ca

Abstract

Using Russian longitudinal data for 1994–2018, we document a secular decline in consumption

and income inequality. Although within-cohort inequality is also declining, the life-cycle

inequality prof‌iles of income and consumption are surprisingly f‌lat. A calibrated life-cycle

model with incomplete markets, high initial variance of the persistent income component, and

moderately persistent income shocks is consistent with nearly f‌lat life-cycle inequality prof‌iles

and the puzzlingly large insurance role of assets found in the Russian data. This is in contrast to

the standard calibrations that fail to match the life-cycle inequality prof‌iles and the panel-data

evidence on consumption insurance.

Keywords: Consumption insurance; emerging markets

JEL classif‌ication:D12; D15; D31; E21; P36

1. Introduction

Income inequality has risen steeply during the f‌irst few years of Russia’s

transition to a market economy.1Starting in 1998, the Russian economy

embarked on a path of a decade-long, robust economic growth accompanied

by a substantial reduction in unemployment; see Figure 1, left panel. The

f‌inancial crisis and the collapse of oil prices in 2009 ended the period of

high economic growth, but the Russian economy resumed its growth in 2010,

albeit at a slower pace. The gains in the aggregate have been mirrored by

a sustained reduction in income and consumption inequality among Russian

households; see Figure 1, right panel.

This paper provides an integrated view of inequality in Russia over time,

for all households combined, and over the life cycle, for a typical cohort as it

ages.

1The Gini coeff‌icient for income more than doubled in a matter of several years, from 0.22 in

1989 to 0.54 in 1992, right after the dissolution of the USSR; see, for example, Guriev and

Rachinsky (2008).

c

2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨

oreningen

f¨

or utgivande av the SJE.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution

and reproduction in any medium, provided the original work is properly cited.

290 Inequality in Russia over time and over the life cycle

Figure 1. Aggregate statistics and inequality in Russia

510 15

6,000 9,000 12,000

1994 1998 2002 2006 2010 2014 2018

Real GDP per capita, l.h.s. Unemployment rate, r.h.s.

0.2 0.4 0.6 0.8 1

0.2 0.3 0.4 0.5 0.6 0.7

1994 1998 2002 2006 2010 2014 2018

Var. log consumption, l.h.s. Var. log disp. income, r.h.s.

We proceed as follows. We f‌irst document inequality trends over time

using panel data for 1994–2018 from the Russian Longitudinal Monitoring

Survey (RLMS) and repeated cross-sectional data on household consumption

from the Household Budget Survey (HBS) conducted by Rosstat, the off‌icial

statistical agency in Russia. Because the average age in the data does not

change signif‌icantly during the period (see Tables A-1 and A-2 in the Online

Appendix), inequality trends must be driven by cohort and/or time effects.

The observed fall in income inequality might be due to a fall in the

income-shock variances, whereas consumption inequality might fall, in

addition, due to improved insurability of income shocks, where both the

income-shock variances and insurance against the shocks could be cohort-

and/or time-specif‌ic.

We show that cohort effects are negligible, whereas time effects are the

essential drivers of inequality trends in two different ways. First, because of

the relatively large cross-sectional dimension of the HBS data, we can zoom in

on the inequality patterns for particular birth cohorts. We f‌ind a secular decline

in consumption inequality for various cohorts, with similar variances across

the cohorts. We reach the same conclusion when analyzing within-cohort

variances in income in our much smaller RLMS dataset. Second, we rely

on the methodology of Heathcote et al. (2005) to conf‌irm negligible cohort

effects and essential time effects behind the inequality trends.

Guided by this f‌inding, we use panel data from the RLMS for 1994–2018

to measure the extent of consumption insurance against permanent and

transitory shocks to net family incomes, assuming that the variances of

permanent and transitory shocks change with time, and we examine if this

insurance differed for the periods of fast versus slow economic growth. For

this measurement, we rely on the state-of-the-art methodology developed

by Blundell et al. (2008), where insurance is def‌ined as the fraction of

permanent and transitory shocks to net family incomes that do not pass

through to household consumption. We f‌ind a substantial role of assets in

c

2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨

oreningen

f¨

or utgivande av the SJE.