International Monetary Fund, Washington, DC

^*This paper was written when the author was the IMF's Resident Representative in Lithuania. He would like to thank the Lithuanian Ministry of Social Security and Labor, and in particular Vita Safjan and Graina Jalinskien, for the provision of numerous time series and valuable comments on previous drafts. The paper has also benefited from discussions with Igor Tomes and comments by Wayne Camard, Daniel Citrin, Peter Doyle, Adalbert Knöbl, Ashok Lahiri, and Gunnar Tersman. Finally, special thanks are due to Ingrida Grivaiauskaite for able research assistance. The views expressed in this paper are those of the author and do not necessarily represent those of the International Monetary Fund. The author is solely responsible for all remaining errors.

Abstract

Transition caused output to contract sharply and income differentials to widen, thus poverty has become a serious policy issue in Lithuania. Dramatic increases in the number of people needing assistance occurred at the same time the capacity to finance social welfare services significantly decreased. Utilizing the latest definition, this paper measures the magnitude of poverty, examining the impact of social assistance programs. Policy simulations suggest that better targeting of the poor would generate a significant reduction in the incidence of poverty.