Why income inequality is so high in Serbia: Empirical evidence and a measurement of the key factors

Abstract

We analyse the extent and evolution of income inequality in Serbia and examine factors that may have contributed to the high and rising inequality. Specifically, using data from the 2013 Survey of Income and Living Conditions, we focus on two issues: the effect of the quantity and quality of household members' employment on the earnings of low-wage workers, and the role of taxes and social transfers in redistributing income from the betteroff to the poor. The results suggest that income inequality, measured by the Gini coefficient, has significantly increased in Serbia over the period of economic crisis, reaching 38.7 in 2013. The examined causes of such a high inequality are the high rate of low work intensity of household members and the high proportion of people working in non-standard forms of employment (i.e., part-time, temporary, and self-employment arrangements), mostly in the informal sector. In addition, the low coverage of social transfers, particularly monetary social assistance and child benefits, and the very low level of progressivity of the Serbian personal tax system explain the relatively modest - by international standards - redistributive role of direct taxes and social transfers.