Distributional Implications of the Economic Development in the Baltics: Reconciling Micro and Macro Perspectives

The aim of this paper was to analyse distributional implications of the economic development reflected at the macro level in the Baltics. We demonstrated how the concepts of income and its measurement at macro and micro levels can be reconciled using data recorded in the EU Survey on Income and Living Conditions (EU-SILC) and National Accounts. We found that household incomes in the Baltics diverge and lag behind incomes reflected at the macro level. This was especially true for two income categories: property and mixed incomes. Average gaps in social benefits and taxes were small, and these were medium for wages and salaries. Adjusting incomes in EU-SILC to cover the observed gaps resulted in increase in income inequality indicators for all three countries, especially for Latvia and for the period of resumed economic growth following the latest economic crisis in Lithuania. Hence, divergences between macro and micro level accounts on incomes hide potentially higher levels of income inequality than shown in official distributional statistics.