in 87 percent of the beneficiary households recorded in administrative data to be identified in the survey,<sup>21</sup> and a total 9.3 percent of all households in Albania as beneficiaries of this social assistance program in the survey. For the disability pension benefit, 41 percent of beneficiary individuals recorded in administrative data are identified in the survey.<sup>22</sup> Targeted **energy transfers** are not captured in the HBS, so they are simulated into the data. We do not have information on beneficiaries and benefits received, so we estimate the latter based on the program rules. In particular, we use the eligibility criteria of the benefit to identify beneficiary households and assign the monthly benefit amount to the family (1,288 new leks per month). Households are eligible if they either (i) receive poverty targeted cash transfer ( _Ndihma Ekonomike_ ); (ii) have household heads who receive a disability pension, but without other employed household members; (iii) have household heads who receive an old age pension, but without any income from employment, and/or working age members in the household; (iv) have government workers receiving a salary of less than 35,000 ALL, but without other employed household members.

We assumed that all of those who are eligible receive the subsidy. This assumes perfect targeting and takeup. Despite this assumption, the simulated number of beneficiaries in the survey is smaller than in administrative accounts (approximately 153,965 and 203,928 respectively, still capturing 90 percent). Assuming program leakage and imperfect take-up will lead to an even higher underestimation of beneficiaries.

# **Indirect taxation**

Indirect taxes are simulated using data on households’ reported consumption of the corresponding items. The team applies the **VAT** rate to the consumption item of the households. However, given the high evasion in Albania on payment of VAT, many consumers may not directly pay indirect taxes. We can either model tax evasion by assuming those who purchase in certain areas are tax evaders, or by assuming effective tax rates that reflect the rates paid in reality.<sup>23</sup> Given lack of quality data on place of purchase, we assume an effective VAT tax rate of 14 percent (compared to the 20 percent statutory VAT rate).<sup>24</sup> This assumption was informed by existing analysis of VAT efficiency<sup>25</sup> and by data on VAT revenue collection. Total VAT collection captured in the household survey represents 54 percent of total VAT collection in national consumer durables, number of children and other sociodemographic variables. Then, we randomly sampled households out of the beneficiary households and match these beneficiary households to non-beneficiary households with the closest propensity scores. Program benefits of NE are then imputed to the matched households, where the amount of benefit imputed is equal to the amount received (reported in the survey) by the household’s matched beneficiary household. The idea is so match the number of beneficiaries in the survey to the national accounts as closely as possible. However, in our case, we do not match exactly the number of beneficiaries in administrative data due to some restrictions with the method: namely, the number of beneficiaries who need to be randomly sampled and matched to non-reporters has to be lower than the number of beneficiary households. The original number of recipient households in the survey was 38,588. Applying the method, we simulate around 69,568 beneficiaries, still less than the 79,339 recipients in administrative data (which represent about 10.4% of the population).

> 21 79,530 households in administrative data vs. 69,569 in the survey (with the simulation).

> 22 156,940 individuals in administrative data (including disabled persons, caregivers and working disabled) vs. 63,900 in the survey. This may be partly driven by misreporting, if out of the beneficiaries only disabled persons reported this benefit under the disability pension category in the Household Budget Survey, while other beneficiaries may consider this benefit as a wage. 23 Rajemison, Haggbalde and Younger show that using statutory rates can overestimate the impact of indirect taxes on income.

> 24 The idea is to apply a tax evasion that is distributionally neutral since we found that, when using the data on place of purchase available in the survey, the distributional impacts were quite sensitive to the different assumptions made.

> 25 IMF (2016) estimates the compliance gap in Albania to be around 34-39 percent of potential VAT. https://www.imf.org/external/pubs/ft/scr/2016/cr16143.pdf

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