Changes in Poverty in Post- Socialist Europe: The Role of Ethnicity and State Transfers

PWP-CCPR-2004-010

Abstract

This paper asks about the nature and extent of poverty in four post-socialist countries in post-socialist Europe, Bulgaria, Hungary, Romania, and Russia. In particular, it explores how state transfers and ethnicity create changes in absolute poverty. To do so, a unique, comparative and longitudinal data set is used, with observations at two time points (1999-2000 and 2001), and analyzed with logistic regression. These data show that poverty is not decreasing in these countries and may be increasing. Furthermore, individuals who are poor during the first time period are more likely to be poor at the second time period in all countries except in Hungary. Overall, these results cast doubt on the neoclassical argument that absolute poverty should decrease during the market transition; though the finding for Hungary does support this argument. The results also suggest that while low levels of welfare payments may perpetuate poverty, higher levels may help to alleviate it. Again, this casts doubt on the neoclassical argument that state transfers interfere with markets and, therefore, perpetuate poverty. Roma poverty is also increasing and stems, at least in part, from discrimination and social labeling. While the alleviation of Roma poverty has become a major policy issue because of European Union, these results suggest that much more effort is needed to improve their condition.