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poverty has probably ceased (although projected price increases may produce unknown results). In others, poverty continues to escalate or deepen or both. Countervailing trends, such as a reduction in poverty, have yet to be evidenced even in countries such as Poland, where economic growth has resumed.

Meanwhile the redistributive capacity of these states is diminishing. States have fewer resources because of the overall decline in production and GDP; the privatization of the most profitable industries and activities first, with control of the "losing propositions" being retained; the declining capacity of the state to collect taxes and contributions; frequent reductions in taxes in order not to discourage capital, especially foreign capital; the growth of the black economy; incestuous relations between new economic and political elites; and the fact that people are less willing to pay taxes or make contributions for deteriorating services. In countries that are heavily indebted, the burden of debt servicing intensifies these difficulties.

The potential consequences of this gap between needs and means are unclear and varied. Until late 1993 or 1994, the inertia of prior commitments, especially pensions, and the pressure of new needs pushed states to continue transfers at relatively high levels. As a result, the share of social transfers in declining GDPs actually increased. However, such figures are seriously misleading. On the one hand, a higher proportion of a shrinking GDP could still mean lower levels in absolute terms. On the other hand, if the unregistered black economy is indeed producing 15 to 40 percent of GDP and going unrecorded, the real figures for the share of social outlays will be considerably reduced.

More radical measures to lower family benefits, pensions, and sick pay have been initiated since 1993, and the results are already visible, both in terms of diminishing the proportion of social transfers relative to overall GDP and their real value (see Table 11-1 for Hungary). It should be recognized, however, that stringent measures in some fields increase the need for social assistance.

It seems almost impossible to devise a system of social assistance that will be both efficient and effective. This is because there is insufficient money to fund a decent safety net and insufficient administrative capacity to target the truly needy. This issue is so crucial that it merits a slightly more systematic discussion. The main difficulties hampering the implementation of an efficient and effective social assistance scheme are discussed below.

The average official wage is so low that recipients barely manage to stay above even a modest poverty line. If the poverty line is maintained at a decent level, there will be substantial disincentives to work. This clearly presents an unemployment trap, one that may be impossible to overcome as long as wages remain low.

It is impossible to determine the truly needy because of both the widespread resort to subsistence agricultural production and the prevalence of the



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