Social Safety Net and the Poor during the Transition: The Case of Bulgaria

May 1995
Bulgaria's social safety net is not well targeted; too many benefits accrue to better-off households rather than to the poor. Comprehensive reform is needed, focusing on pensions, unemployment benefits, child allowances, and social assistance.
Using data from the 1992 Bulgarian household budget survey, Hassan and Peters analyze the structure of income in Bulgaria, identifying who the poor are and how they are reached by the social safety net. Their main findings about household incomes:
° Social transfers provide an extremely large component -- 24 percent -- of household income per capita. That is roughly on a par with the share in other Eastern European countries but more than 40 percent higher than the share in OECD countries.
° Wage earnings have declined as a source of income, reflecting the contraction of the state sector. Wage income as a share of income in Bulgaria has declined to only half the OECD level.
° Income from self-employment has increased, reflecting the surge in small-scale retail establishments.
° Income is considerably less concentrated in Bulgaria than in other lower-middle-income countries.
The authors' main findings about the poor (the bottom 20 percent in terms of household income):
The head of household in a poor home tends to be older, a woman, poorly educated, and unemployed. Poor households are not necessarily larger households in Bulgaria, unlike in other developing countries.
The sources of income in poor Bulgarian households reflect other findings:
° The poor depend for more than half their income on social benefits (especially pensions), indicating the importance of the social safety net.
° The social safety net is not well targeted. Most social benefits are pro-poor, in the sense that they improve income distribution, but many benefits accrue to better-off households. There is substantial scope for better distribution of income.
Hassan and Peters conclude that comprehensive reform of social benefits is needed, focusing on pensions, unemployment benefits, child allowances, and social assistance.
This paper -- a product of the Country Operations Division, Europe and Central Asia, Country Department I -- is part of a larger effort in the department to analyze the social dimensions of stabilization and adjustment.