The objectives are fivefold:

1. To study and compare the evolution of income distribution in catching-up countries;
2. To investigate the role of unofficial activities as last resource in alleviating the distributional effects of more pronounced competition;
3. To assess the extent, the impact and the efficiency of income and social policies with respect to counteracting negative social effects of the competitive pressure;
4. To analyze the subjective factors underlying the income distribution;
5. To assess and explain the complex interaction between the social profile and the evolution of income distribution in transition economies.

The general assumption is that competition and the freeing of market forces have brought about more unequal and unstable distributions of income and wealth. It is important to study the direct consequences of the competition on economic performance, but equally the way people perceive both higher competition and higher inequality. Depending on their particular situation and expectations of future mobility, it is possible to assess the propensity with which members of the society would tend to ask or not for correcting mechanisms.

The following tasks will be undertaken:

A survey on the existing literature on patterns of income distribution in selected candidate countries in comparison with EU periphery countries. We will investigate particularly the households coping strategies under the economic pressure of increased competition. The issue of poverty rates in candidate countries will be specifically targeted.

A survey on the informal informal economy’s share in candidate countries following restructuring and opening up markets will be conducted in order to provide additional insight on the social consequences of pre-accession and integration.

We will undertake country studies on preferences and efficiency of income and social policies.

We will perform an analysis of the subjective perception of competition, with a particular interest in its distributive consequences in catching-up and in accession countries. We will try to disentangle the various channels through which competition and its distributive consequences are assessed and interpreted subjectively by the citizens of accession countries.

The final task will draw on the findings in the previous stages to discuss the evolution of the income distribution both as an indicator of the impact from the increased integration of markets and from competitive pressure on tradable goods and factors markets, as well as a result of social groups’ and individuals’ attitudes and perceptions.

The methodology we employ is the institutional and policy analysis, while for the informal economy and for the study on attitudes and perceptions; our method will consist in relying on household surveys conducted in accession countries. These surveys typically cover a representative sample of the population of a country. They are conducted on a panel basis, i.e. the same individuals or households are interviewed round after round since the beginning of the transition, and they contain objective measures as well as attitudinal questions, i.e. subjective welfare and other subjective judgments.

We will apply these micro-econometric panel data techniques to the various samples at hand in order to assess the general perception of increased competition and income differentiation in transition countries and the flow of resources towards the informal economy as coping strategy. The transparency and conditions of competition are also quite different across countries, depending on the quality of institutions, of legal foundations and of governance. The comparative aspect of the study will thus be useful in assessing the link between the nature of competition and subjective welfare.