a few of these cases in formal employment, thus relevant to taxation), it was assumed that this was a family business so all but one member were assigned the minimum wage, and one person was assigned the remainder subject to a self-employment flat tax rate.<sup>19</sup> For households with one wage and one selfemployed, the model uses ratios from the income data reported in the survey between these two income sources to assign it to each of the two household members. For the cases in which more than two peopled worked (8 percent), labor income was equivalently assigned in per capita terms.

# **Pensions and social protection spending**

The methodology for Albania uses the **old age pension income** received from pensions in Albania, as well as the income from several **social protection programs** - including the two main social assistance programs in Albania, as reported in the household survey.

**Old age pensions** are treated as savings/deferred income and thus part of market income, as in many other countries around the world that have conducted this type of analysis. Given the contributory nature of pensions and their size relative to market income in Albania but, most importantly, their unique lifecycle aspect - with people contributing throughout their working lives to receive income in old-age – recording them as pure Government transfers may not be accurate. Nevertheless, as explained below, results for both scenarios are presented.

The survey captures information on other sources of income treated as transfers. This includes disability pension, survivor pension, unemployment benefits, social/care services for the elderly and disabled, and _Ndihma Ekonomike_ (NE, the poverty targeted social assistance program). Even though, by design, some of these are contributory benefits, their contributions and benefits are usually treated as taxes and transfers in these types of analyses given their shorter-term nature and people’s perceptions of these as such (as opposed to savings). Nevertheless, given their small size with respect to households’ total income, results are not expected to be influenced by this methodological choice. These categories do not match perfectly with the full spectrum of benefits available in Albania, some quite small in coverage and benefit, so households might be attributing the source of certain benefits to others. Nevertheless, the main benefits – disability pension and _Ndihma Ekonomike_ – are presented separately in the survey and likely more accurately reported. Due to data limitations, the disability income cannot be disaggregated into disability assistance (non-contributory) and disability pension (contributory). Given that the number of beneficiaries of NE in the survey is significantly underestimated when compared to administrative data, a propensity score matching method was applied, following the methodology by Souza, Osorio, and Soares (2011),<sup>20</sup> resulting household types: A) Households in which both members have tertiary education; B) Households in which no member has tertiary education; C) Households in which one member has tertiary and the other does not. Then, the estimated coefficients are used to allocate labor income in the different household types. In A) The main earner received around 10 percent higher labor income than the second earner. In B) The premium is about 20 percent, while in C) this is 19 percent. We focused on tertiary since previous evidence for Albania showed that the wage premia is larger for tertiary.

> 19 This assumption implies that only the owner is subject to self-employment taxation rules. Small businesses in Albania are usually owned by one person and, although all family members work in this business, they are usually treated as wage employed and registered with the authorities as such. The latter rule is strengthened and better implemented from 2015 onwards given the increased efforts of the government against informality. In addition, there are incentives from the household side to register other household members as minimum-wage salary workers under the family business, as they would be 0% PIT rate instead of selfemployment taxes.

> 20 This method is commonly used to adjust for underestimation of beneficiaries of a particular program. The method consists in imputing beneficiaries that did not report to be recipients of the NE program in the survey, but are “likely beneficiaries”.  First, we run a Probit model of program participation against household per capita consumption, possession of various household assets and

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