the disabled, transport compensations for the disabled and material assistance. Utilities compensations, child benefits, war veteran allowances and social allowances account for the quasi-totality of benefits captured by the surveys. These benefits are all allocated monthly and the aggregated variable ( _B_ ) has been transformed in real and per capita terms and relative to the poverty line so as to be comparable with the welfare indicator ( _y_ ) .

We use four groups of conditional variables to which we attach different economic interpretations. The first group of variables ( _a_ ) is the characteristics of the household head including age, sex and education. These are standard variables which are generally known to be relevant for household welfare. The second group ( _b_ ) is variables indicating different levels of household dependency from active individuals including the number of children and the number of household members relatively to the number of earners in the household. These variables are expected to be correlated with welfare and also with the probability of receiving benefits but they are not dropped by the software for multicollinearity and the correlation coefficients with the social benefits variables are rather low. The third set of variables _c_ includes those variables that are ( ) time-invariant but may be relevant for welfare including rural location and whether the household has been interviewed in the summer months or not. Rural areas are known to be poorer and welfare is generally subject to seasonal variations. The fourth group of variables ( _d_ ) includes two macroeconomic variables which are expected to capture macroeconomic shocks. One is the growth rate which is cross-section invariant and one is the district employment rate which is defined as the average district number of earners divided by the number of adults in the district as captured by the survey. This last variable varies over time and across districts. Means of all variables used in the regressions are reported in Table A1 in the Annex for the four years and for the balanced and unbalanced panels.

# **7. Results**

Social assistance benefits in Moldova privilege the poor, meaning that the greatest share of these benefits is allocated to households with monthly consumption per capita below the poverty line. However, between 2001 and 2004 the share of social benefits received by the first quintile (the poorest 20% of households) has declined significantly from 57.6% of total benefits to 49.2%. Redistribution has occurred in favor of the second and third quintiles while the top two quintiles maintained a flat and non insignificant share of around 10% of total expenditure each (Figure 1).

Living conditions have improved very significantly between 2001 and 2004. Average consumption relatively to the poverty line ( _y_ ) has increased from 1.05 in 2001 to 1.53 in 2004 and the poverty headcount ratio has declined from 62.6% to 34.1%.<sup>11</sup> The average benefit relative to

> 11The poverty trends indicated here differ from those reported in poverty studies on Moldova (GoM 2005 and World Bank 2004). This is explained by the adoption of different deflators for the consumption figures and by the use or non use of equivalence scales.

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