The Effect of State Transfers on Poverty in Post-Socialist Eastern Europe

During the market transition in Eastern Europe, social support mechanisms shifted from employment-based measures to means-tested ones. This restructuring, along with an overall decrease in social support and economic productivity and an increase in unemployment, meant that these payments were often inadequate to address the large rise in poverty during this period of time. Little research, however, considers whether individual-level payments were effective in reducing poverty. This paper considers the efficacy of these individual-level payments in Bulgaria, Hungary, and Romania, using two-wave panel data. It shows that state transfers to individuals reduced their poverty in all these countries. Thus, while the level of payments may have been inadequate to eliminate the adverse effects of the market transition, the payments themselves were beneficial to individuals and reduced their poverty.