macroeconomic shocks that occurred during the period considered. We know that between 2001 and 2004 Moldova enjoyed sustained growth and that employment has improved during the period. We can use the growth and the employment rates as regressors in place of time dummies and check the impact of these shocks on the social benefits parameter.

In conclusion, the RE model is an obliged choice for comparing models with all forms of regressors. The FE model with the macroeconomic variables is probably the best choice to address issues of unobserved heterogeneity, period effects and simultaneity but it drops time invariant regressors. The BE model is less relevant but is a useful counterfactual to the FE model which is a within effects model and focuses on time invariant effects.

# **6. Data and variables**

Data are drawn from the 2001-2004 Moldova Household Budget Survey (MHBS). The survey covers approximately 6,240 households every year interviewed in monthly blocks of about 520 households each. It includes a panel component with an elaborate rotation scheme and a maximum tenure of each household of four years.<sup>9</sup> The survey is a multi-stage sampling and multipurpose survey and includes sections on income and consumption as well as sections on labor, health and others. In the data used for this paper, a balanced panel includes 2,469 households over two years and 866 over the four years period. A balanced panel includes only observations included in the panel by design.

As a measure of welfare we use real monthly consumption per capita divided by the poverty line ( _y_ ) . This is a standard approach in similar studies (Ravallion et Al. 1995, van de Walle 2003). Consumption is expected to be a better measure of welfare than income given that income is underreported and is more sensitive than consumption to seasonal variations. We use real consumption measured at 2001 prices. The poverty line is the one adopted by the Government of Moldova in 2001 which was 195 Lei (GoM 2004). The poverty line was calculated with a cost of basic needs approach based on a food basked of 2,100 calories/day and an extra amount calculated for non food items. The Purchasing Power Parity (PPP) equivalent value of the 2001 poverty line was approximately 2.5 USD/day which is what the World Bank considers as an appropriate poverty line for transitional economies (WB 2005). We opted to ignore equivalence scales. This is the approach followed by the World Bank in its study on poverty in Moldova (WB 2004) and is also justified by the arbitrary nature of equivalence scales and by the fact that results are often very sensitive to the type of equivalence scale used.10 Nine types of benefits are considered: utilities compensations, child allowances, war veteran allowances, social allowances, death grants, Chernobyl compensations, care-taker allowances for

> 9Signoret, J.E. (2003) provides full details on the panel structure and rotation mechanisms.

> 10For example, in a study on poverty (GoM 2004), the Government of Moldova uses an equivalence scale of 1 for the first adult in the household, 0.7 for the other adults and 0.5 for children below the age of 16. The poverty estimations provided by this study are very different from the estimations provided by the World Bank (2004) for the same years.

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