Another difficulty with incomes from the agricultural module concerns households with agricultural incomes that report negative net revenue (Table 5).<sup>15</sup> While this is problematic and can be due to various causes, it is notable that the share of households with negative agricultural incomes is stable between 2009 and 2010 (34% of agricultural households) and only somewhat higher in 2008 (38 percent). It is also broadly similar throughout the 2008-2010 period across areas (urban - rural), geographic regions, or welfare distribution. The households with negative agricultural net revenues are also uniformly distributed across the welfare distribution in all years. For these reasons, we recode negative values to zero for purposes of the simulation (Table 6).

_Incomes from family business_ : In addition to the agricultural income module there is a separate module for revenues and expenditures from business. Non-zero incomes from business are recorded for 2-3% on average of households in the sample between 2008 and 2010.<sup>16</sup> Net incomes from this module are imputed (on a per-worker basis) to household members who report a non-agricultural occupation based on the same algorithm as the one described above for agricultural incomes.

Other sources of incomes, recorded at the level of the household, include (i) income from remittances; (ii) capital income (interest); (iii) farming income for households where no one is employed; and (iv) other income, which includes various social protection transfers.

# **4. Estimation results for 2011**

The macroeconomic context for Serbia in 2011 is not particularly simple to predict poverty and distributional measures with a high degree of confidence. There are several forces in the economy that would affect households in opposite direction via different transmission channels. For instance, on the one hand, GDP is increasing in all sectors of the economy; mainly in industry. This would positively impact the labor income of households whose members remain employed in 2011. However, labor market conditions are still deteriorating in 2011 with higher unemployment and inactivity rates than in 2010. From the non-labor viewpoint Serbian households face the same problem: while international remittances decreases by almost 6 percent in 2011, other non-labor income components remain constant in real terms or increase at the total growth of the economy.

## _4.1 Overall predictions on poverty_

Table 7 presents the projected poverty measures which consider all labor market movements via employment and earnings as well as non-labor income. The national poverty incidence is expected to increase by 2 percentage points between 2010 and 2011. This represents about 150 thousands individuals falling into poverty in one year period. The condition of those who were poor in 2010 would also be deteriorated in this period. Depth and severity of poverty are expected to show similar trends as the headcount rate. Aggregate inequality would also increase in 2011. Inequality measures like the Gini and Theil indices present an increment of 2 and 1.5 points in one year.

Notably, aggregate trends on poverty incidence for 2011 based on the microsimulation model diverge from the predictions based on the projection methodology that has been used in the ECA region in the past (World Bank 2010), which maps GDP dynamics to household expenditure dynamics. This approach takes as a baseline the welfare vector and the associated poverty line from a household survey at time _t_ and GDP dynamics (in real terms) between _t_ and _t+1_ , and maps these dynamics to a new welfare vector at _t+1_ , given a certain degree of pass-through from GDP to consumption (here, the _elasticity approach_ ) _._ Based on this projected welfare vector and the constant (in real terms) poverty line, new poverty estimates for _t+1_ are

> 15 These households represent about 10% of the overall sample.

> 16 A total of 159 HH in 2008, 145 HH in 2009 and 106 HH in 2010, of which only 5 HH in 2009 and 6 HH in 2010 are negative. These are recoded to zero.

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