# 1. Introduction

Most research on the redistributive impacts of public policies has been conducted on the established welfare states – the members of the European Union (EU) or high-income members of the Organisation for Economic Co-operation and Development (OECD) (for instance, see Gornick and Smeeding (2018), Bussolo, Krolage et al. (2019), OECD (2015), Paulus and Tasseva (2020)), The research tools and methods recently developed by the Commitment to Equity (CEQ) Institute<sup>1</sup> allowed similar analysis to be undertaken for a number of low- and middle-income countries across the world (Lustig 2016, 2017, 2018). As far as the Former Soviet Union countries are concerned, apart from the Baltic countries, there are few comparative studies available (most recent studies include World_Bank (2005), Weigand and Grosh (2008)). The region, however, is highly interesting due to a unique combination of strong elements of path dependency (socialist legacies) with radical liberalization and welfare state retrenchment in the 1990s.

This paper discusses the role that tax and benefit policies play in reducing inequality and poverty in eight post-Soviet countries (Armenia, Belarus, Georgia, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan and Ukraine) circa 2015 and evaluates their performance in a comparative way. Analysis is based on the incidence analysis under the Commitment to Equity (CEQ) framework that assesses the distributional impact of a country’s taxes and transfers (Lustig 2018). Data comes from the existing CEQ analyses conducted by the World Bank separately for each country. First, to provide context for the subsequent analysis of the tax-benefit policies, we look at the trends in growth, inequality and poverty in these countries over the past three decades. Second, we quantify the impact of the tax-benefit systems on inequality and poverty and compare it across the eight countries. Third, we examine in detail the extent to which taxes and social spending in these countries are progressive (i.e., whether the average transfer declines with income) and equalizing (whether they reduce inequality and poverty). We conclude with a discussion as regards to how the redistributive capacity of the systems can be enhanced.

The contributions of this paper are four-fold. First, we examine actual outcomes in terms of inequality and poverty and assess the extent to which these outcomes can be attributed to various welfare state policies. This is in contrast with other studies on the post-Soviet welfare states which focused on the analysis of institutional indicators (Manning and Tikhonova 2004, Cook 2007, Cerami 2009, Cook 2010, Cook 2010). Second, we estimate the cumulative impact of the whole tax-benefit system (including direct and indirect taxes, cash transfers and transfers in kind such as public education and health care). Most studies of the redistribution in rich countries and beyond focused on the impact assessment of cash transfers and direct taxes (e.g. Gornick and Smeeding (2018), Bussolo, Krolage et al. (2019), OECD (2015), Paulus and Tasseva (2020)), leaving substantial parts of the welfare state out of scope of the analysis. Third, since all the country studies used in this paper applied the CEQ approach, the results are fully comparable across the countries. Fourth, the existing cross-country studies using the CEQ methodology has not yet covered countries of this region (Lustig 2016, 2017, 2018).

The remainder of the paper is organized as follows. Section 2 provides an overview of the trends in growth, poverty and inequality over the past decades. Section 3 describes the methodology and data. Section 4 presents the results of the analysis, by looking at the similarities and differences in the design and efficiencies of tax and spending policies in the eight countries under study. In the final section we discuss the findings and options for the reform of expenditure and tax policies in these countries to help achieve distributive objectives in an efficient manner, that are consistent with fiscal sustainability and longer term goals.

# 2. Trends in Growth, Inequality and Poverty in Post-Soviet Countries

Figure 1 highlights the wide heterogeneity across countries at the onset of the Soviet collapse, with significant gap between the Russian Federation and the rest of the former Soviet Republics. The GDP per 2