Living unequally, feeling unequally: the poverty–inequality nexus through objective and subjective lenses in transition economies

This article investigates the determinants of subjective perceptions of inequality in transition economies, focusing on the gap between individuals’ objective income rank and their self-assessed position on the income ladder. Using the fourth wave of the Life in Transition Survey (LiTS IV), we apply regression and Heckman selection models to examine how welfare status, household structure, and adverse shocks shape inequality perceptions. The results show that subjective assessments broadly align with objective income position, but with systematic variation. Poorer households tend to report worsening inequality over time, while better-off groups are relatively more optimistic, though vulnerable near-poor households show heightened anxieties. A distinct pessimism gap emerges, with higher-income households often underestimating their position, shaped by unobserved traits and mitigated by trust in government. Adverse shocks – especially financial stress and health deterioration – intensify pessimism. These findings highlight the need for policies that build resilience, strengthen social safety nets, and enhance institutional trust to align perceptions with objective progress.