The Role of Government in Tackling Income Inequality: Evidence from Central and Eastern European Countries

Abstract The aim of this study is to investigate the role of government interventions in lowering income inequality in post-communist economies of Central and Eastern Europe (CEE). The focus is set on three key policy instruments: progressive income taxation, social transfers, and minimum wage regulations. We use the Gini coefficient for market income and the Gini coefficient for disposable income to quantify income inequality in observed economies and to estimate how government policies tend to create differences between these two measures. We use open panel data from period 2012–2021 to determine the latest effects of these policies in the post-communist CEE economies. The main finding is the positive role of progressive income taxation, which significantly lowers the Gini coefficient for disposable income, effectively lowering income inequality in observed economies.