Pensions and direct transfers are the most progressive component of the tax-benefit system in Moldova with the Kakwani index of 0.81 and 0.8 respectively (Table 13). They are followed by in-kind health and education benefits. Direct taxes and pension contributions are also slightly progressive, while indirect taxes (mainly VAT) are the only regressive component of tax-benefit system in Moldova. Pensions also have the highest marginal contribution to poverty and inequality reduction followed by other direct transfers.<sup>10</sup> Obviously, all benefits positively contribute to poverty reduction. In the case of inequality, the results are similar - direct taxes, pension contributions and inkind benefits reduce inequality, while indirect taxes increase inequality.

**Table 13. Progressivity and redistributive effect by types of interventions.**

||Progressivity<br>Kakwani index t|o Gini index to national poverty <br>|to international poverty (3.2) to international poverty (5.5)<br>Marginal contributions, p.p.|
|---|---|---|---|
|SSC|0.132|3.2<br>-1.8|-0.3<br>-2.9|
|Direct Taxes|0.135|1.0<br>-0.6|0.0<br>-1.1|
|Pensions|0.812|12.6<br>18.3|20.2<br>20.7|
|Direct Transfers|0.803|2.9<br>6.8|3.6<br>8.2|
|Indirect Taxes|-0.372|-1.2<br>-9.7|-1.7<br>-8.7|
|In-kind Health|0.464|0.1<br>3.6|0.8<br>3.3|
|In-kind Education|0.396|2.2<br>5.6|4.4<br>6.1|

Notes: Kakwani index is the measure of progressivity. The higher the value is the more progressive is the program. Marginal contributions are measured at the level of final income. National - below the national poverty line (1562.8 MDL per month per adult equivalent) International - below the international line (3.2 USD/day in 2011 PPP or 759.4 MDL per month per capita) International - below the international line (5.5 USD/day in 2011 PPP or 1305.2 MDL per month per capita) Source: authors’ calculations using HBS-2017 data.

At the level of specific direct transfers, the most progressive transfers are social assistance to poor families (Table 14). However, all other analyzed direct transfers are also highly progressive. The highest effect on inequality and poverty reduction comes from pensions – labor and social, assistance to poor families and other benefits. Despite a very high level of progressivity, social assistance transfers to poor families have a moderate effect on poverty – on their own they decrease poverty by 1.5-2.5 percentage points; this is 2 times lower than social pensions and 10 times smaller than labor pensions. This moderate effect is mainly explained by the relatively small size of the program.

**Table 14. Progressivity and redistributive effect by direct transfers.**

||Progressivity<br>Kakwani index t|o Gini index to|nationalpoverty to internationalpoverty (3.2)<br>to internationalpoverty (5.5)<br>Marginal contributions, p.p.|
|---|---|---|---|
|Laborpensions|0.829|8.6|17.6<br>15.5<br>18.9|
|Other contributory pensions|0.718|1.4|3.8<br>2.3<br>4.0|
|Non-contributory pensions: social|0.770|0.2|0.7<br>0.2<br>0.5|
|Social assistance topoor families|1.011|0.9|2.4<br>1.4<br>1.8|
|Child and familybenefits|0.521|0.5|0.7<br>1.0<br>1.1|
|Unemployment benefits|0.763|0.0|0.0<br>0.0<br>0.0|
|Scholarships|0.440|0.1|0.2<br>0.2<br>0.5|
|Other benefits|0.860|0.9|3.9<br>0.8<br>3.1|

Notes: Kakwani index is the measure of progressivity. The higher the value is the more progressive is the program. Marginal contributions are measured at the level of disposable income. National - below the national poverty line (1562.8 MDL per month per adult equivalent) International - below the international line (3.2 USD/day in 2011 PPP or 759.4 MDL per month per capita) International - below the international line (5.5 USD/day in 2011 PPP or 1305.2 MDL per month per capita) Source: authors’ calculations using HBS-2017 data.

As most of the redistribution in Moldova comes from pensions, the group that benefits from the biggest poverty reduction is pensioner only households. Poverty at the level of disposable income for this group is 7.5 times lower than at eth level of market income (Figure 10). While all families without children have poverty rates at the level

> 10 Marginal contributions are calculated as difference between poverty or inequality (Gini) with and without intervention.

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