**Latvia 17.8 4.9 2.0 13.95 3.89 1.65**

Authors’ calculation.

**Table 4: Estimates of Headcount Index by Socioeconomic Groups under the Assumption of no Economies of Scale (** θ = 1 **)**

||**Househo**|**ld Budge**<br>**1997**|**t Survey**|**Househo**|**ld Budge**<br>**2000**|**t Survey**|
|---|---|---|---|---|---|---|
|**Socioeconomic Groups**|**National**|**Urban**|**Rural**|**National**|**Urban**|**Rural**|
|Wage Earners|17.1|14.01|29.7|12.29|8.24|24.51|
|<br>Self-employed|16.5|12.7|18.9|9.54|7.93|22.27|
|<br>Pension|19.5|13.8|25.0|13.04|7.84|23.42|
|Other Social Benefits|47.1|41.5|68.6|41.42|23.22|67.31|
|Other Income|29.2|25.5|34.2|22.24|19.59|28.05|
|**All SEG**|**19.4**|**15.56**|**28.5**|**13.99**|**9.15**|**25.86**|

Authors’ calculation.

It is worth pointing out that the size of the poorest socioeconomic group, “ _Other Social Benefits_ ” is relatively small. While the “ _Wage Earners_ “ together with the “ _Self-Employed_ ” account for over 60% of the active labor force, the poorest socioeconomic group relying on “ _Other Social Benefits_ ” account for less than 2% of the total population of Latvia (Republic of Latvia [2003]), and the persistence of widespread poverty among this group may be a reflection of the extreme vulnerability of its population, and mistargeting of social transfers.<sup>28</sup> This group has the largest poverty gap (16.52), which is highly sensitive to the poverty line. When the poverty line is increased to 35 LVL per person per month, the headcount index rises to 50 percent and the poverty gap to about 21% (see Table A.4 in Annex). However, the relatively small size of this income group suggests that under perfect targeting, the total amount of resources required to fill its poverty gap would be minimal: less than 212,000 LVL per month and about 2.6 million LVL per year. This represents about .032% of GDP, and is relatively small compared to the overall level of social assistance allocated from the budget and municipalities, which accounts for over 20% of GDP.<sup>29</sup> The persistence of widespread rural poverty among individuals relying on “ _Social Benefits_ ”, especially in the context of rising social transfers, raises the issues of efficiency of public spending allocation and targeting systems. The issue of efficiency of the targeting mechanism under the existing social transfers scheme was already raised in the last World Bank Poverty Assessment, which found the distribution of social transfers to be almost flat on the scale of income groups, and the amount of leakages extremely high, i.e. in the range of 75% (World Bank [2000a]). The persistence of widespread poverty in this Socioeconomic group may

> 28 Some of the key components of social benefits accruing to these poor and vulnerable households include state social insurance benefits such as unemployment benefits, maternity benefits, sick payments, and state social security and assistance benefits such as child care allowances, birth and funeral grants, and local municipalities assistance, housing allowances, cash benefits for improving the health, and cash benefits to low-income families.

> 29 In 2003, social transfers (excluding health care) to households was about 1 billion LVL, representing about 12% of GDP (for further details, see IMF [2003]).

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