indirect taxes (value added tax or VAT and excises) and adding subsidies, we arrive at _post-fiscal_ or _consumable income_ which reflects the actual amount of market goods and services consumed by households. Our _final income_ includes the cash equivalent of the cost of public health and education services consumed by households.

This paper analyzes the redistributive and poverty-reducing effect of the tax-benefit system under the assumption that pensions are treated as direct transfers, while contributions to the pension system are subtracted from gross income. This is based on the nature of the pension system in many of the countries considered for the analysis. In particular, the PAYG system formed in the Soviet Union has undergone reforms in the 2000s aimed at adding contributory pillars. This resulted in a divergent mix of pension systems in the region, but with one common feature – the weak link between contributions and actual pensions payments (Grishchenko 2016). Thus, it is more natural to consider pensions as transfers similarly to other contributory programs (such as unemployment benefits).

The analysis used here is point-in-time and does not incorporate behavioral or general equilibrium effects. The analysis is based on economic rather than statutory tax incidence. For example, it is assumed that personal income taxes and contributions by employees and employers are borne by labor in the formal sector. Individuals who are not contributing to social security are assumed to pay neither direct taxes nor contributions. Consumption taxes are fully shifted forward to consumers. According to the common practice adopted in the region, the welfare indicator used is income per capita. Finally, it is worth noticing that CEQ analysis relies as much as possible on information about social transfers and taxes reported in the survey. Therefore, corporation taxes cannot be included in the analysis. If the survey does not include questions on certain items, the values are either simulated or imputed. Because the survey data is being used for the assessment of taxes and benefits, the annual amounts of tax revenues and social spending do not necessarily coincide with those found in other sources, in particular National Accounts.<sup>a</sup> We focus on the redistributive role of tax and benefit policies as one of the underlying forces behind the disparities in poverty and inequality rates across the FSU countries. Poverty is measured using the LowerMiddle-Income Class Poverty Line of the World Bank. Depending on the year in which a CEQ study for each country was conducted it is equal to either $2.5 or $3.2 per person per day at 2011 PPP values.<sup>2</sup> Inequality is measured using the Gini coefficient. The _distributive impact_ of a tax or a transfer is measured as the marginal reduction in inequality/poverty due to a tax or a transfer, i.e. the absolute change in Gini index/poverty headcount due to a removal of the transfer or the tax from household income (Reynolds and Smolensky 1977). Therefore, a positive value indicates that a tax or a transfer contributes to a decline in inequality/poverty, and otherwise. The extent of fiscal redistribution depends on the size of taxes and social spending (as share of the GDP) and on their progressivity.<sup>b</sup> _Progressivity_ refers to the degree to which tax burdens and benefit entitlements rise or fall with household income. The summary measure of progressivity is the Kakwani index (Kakwani 1977). The Kakwani index is equal to the difference between the Gini index for a tax/transfer, and the Gini index for incomes before application of the tax/transfer. Theoretically, the Kakwani index can vary between -1 to 1; the larger the index is, the more progressive is the expenditure or tax.

The data for comparative analysis comes from the CEQ analyses for separate countries produced by country teams at the World Bank that were available at the time of writing: Armenia (World_Bank 2016), Belarus (Bornukova, Shymanovich et al. 2017), Georgia (Cancho and Bondarenko 2017), Kyrgyzstan (Ismailakhunova, Shymanovich et al. 2019), Moldova (Cojocaru, Matytsin et al. 2019), Russian Federation

> a Wherever possible, the analysis relies on the results from the CEQ based on household surveys from respective countries. When estimates are unavailable from the CEQ results, the analysis depends on other sources, such as national accounts reported in publicly available sources.

> b Size of taxes and social spending is derived either from CEQ results or from national accounts available from publicly available sources.

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