FY14, compared to 3.5 percent of GDP in the previous fiscal year. This improvement in Egypt’s fiscal stance is due to both improvements in revenues which recorded 19.0 percent of GDP in FY17 compared to 18.1 percent of GDP in FY16 and a decrease in expenditures which came in at 29.8 percent of GDP in FY17 compared to 30.2 percent of GDP a year earlier. The increase in revenues was mainly driven by an increase in taxes on goods and services (the VAT) while the decrease in expenditure was mainly driven by a decrease in the wage bill.

The government’s current fiscal objectives are to continue to address macroeconomic imbalances, including reducing the public debt level and repaying all arrears owed to foreign oil companies, while creating space for social protection programs. The government has started to implement its constitutional mandate of devoting 10 percent of GDP to social spending. To widen the protection granted to the segments of society that are most at risk, the government has increased the monthly amount and coverage of the conditional cash transfer program (Takaful and Karama); the amount was increased by LE 100 for all households in July 2017 and the program currently covers almost 2 million households. Starting in FY18, the government has also increased the allotment on the food ration cards from LE 21 to LE 50 per person per month. Income tax thresholds were increased, state pensions were increased by 15 percent, and an exceptional cost of living bonus was paid to state workers.

Recognizing the challenges faced by the GoE, it is imperative to produce evidence that can inform decisions regarding government allocation for spending across social programs. The GoE is engaged in a new vision that moves away from using universal subsidies as a poverty reduction strategy, while scaling up targeted transfers, engaging the private sector, and encouraging its growth by passing laws that aim to improve the business regulatory environment as well as promote competitiveness.

To contribute to the policy dialogue, this study assesses the redistributive impact of fiscal policy in Egypt using an internationally recognized methodology developed by the Commitment to Equity (CEQ) Institute (see Lustig 2018). The study’s objective is to estimate the impact of fiscal revenue collections (taxes) and fiscal expenditures––direct cash and near-cash transfers, in-kind benefits, and subsidies––on household-level inequality and poverty. It then provides evidence to help policy makers and Egyptian stakeholders understand the trade-offs inherent between the government’s current fiscal policy priorities (such as energy policy) and other, social goals (such as poverty reduction). The assessment is based on the fiscal policies as of 2015, since that is the most recent year for which a household survey is available and allows for estimating the incidence of all the policies analyzed.

Using the standard approach of the CEQ model, the impact of the fiscal system in the Egyptian population is described via an estimation of prefiscal and postfiscal income measures. The prefiscal measure comprises market income before any transfers (including, for instance, public spending on health and education, farming inputs, fuel and energy subsidies, and unconditional cash transfers) or taxes (including personal income taxes, general sales tax, property taxes, and so forth) of any kind have been received or paid by the household. Postfiscal income<sup>5</sup> takes prefiscal income and adds to it a subset of executed fiscal policies: subsidies and direct transfers received, direct and indirect taxes paid, and in-kind transfers received through use of services.<sup>6</sup> Poverty and inequality measures then are derived under pre- and postfiscal income measures. Thus, by comparing these welfare indicators for the distribution of each

> 5 Postfiscal income concepts include net market Income, disposable income, consumable income, and final income. See Figure 7 and accompanying text.

> 6 The primary microdata source used for this study is the 2015 Household Income, Expenditure, and Consumption Survey. Administrative and budgetary data are used to determine the magnitude of the fiscal policies allocated.

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