Measuring the Distributional Effects of Inflation in Croatia by Using the LES Approach

This paper deals with distributional effects of price changes in the period from 2000 to 2007. Even though in this period we can observe relatively low inflation rates, the goal of the research is to determine whether there are possible negative effects of price changes on income inequality in Croatia. The approach bases on the application of the Linear Expenditure System (LES) on the aggregate data, i.e. deciles of household income groups. The results show that overall inflation rate does not determine distributional effects in Croatia. In some years, changes in prices present higher burden for lower income groups, while in other years, higher income groups are worse off. It seems that the redistributive effect primarily depends on the structure of price changes. Therefore, we need further research on this issue