The paper analyses income distribution in Croatia using the Household Budget
Survey data. The results point to a mild increase in inequality during the 1998-2002
period. A non-linear increase in pensions in 2001 in favour of the better-off households
has contributed to the rising inequality. In the meantime, other social transfers have
become better targeted towards the poor suppressing overall inequality increase. Wages
and salaries have become increasingly important and more unequally distributed
sources of income. The income share of the poorest decile has shrunk due to its lower
share in wages and pensions. The paper concludes with a proposal for introducing a
panel survey of households in order to improve monitoring of poverty and inequality.