# **3 Data and methodology**

### **The objective of this fiscal incidence analysis is to analyze the impact of taxes and social expenditure on**

**households’ welfare, poverty, and inequality in the West Bank and Gaza.** Although designing and implementing fiscal policies should consider different dimensions—including fiscal sustainability, economic efficiency, externalities, and equity—the motivation for performing our analysis is fourfold:

- (i) There has not been a comprehensive distributional assessment of the country’s fiscal system.

- (ii) The current government is operating in an environment of increasing fiscal pressure, with an urgent need to mobilize revenue and increase fiscal space.

- (iii) Given the above, findings from the fiscal incidence analysis create an evidence base for how to promote tax and expenditure reforms consistent with both fiscal sustainability and fiscal equity.

- (iv) In addition to helping assess distributional repercussions of existing fiscal policies, developing detailed microsimulation models for fiscal incidence analysis also creates a platform to simulate distributional impact of potential policy reforms.

## **3.1 Data sources**

### **The fiscal incidence analysis in the Palestinian Territories uses the following data sources:**

- The most recent, nationally representative household survey, the Palestinian Expenditure and Consumption Survey (PECS) 2016/17, is a multi-purpose survey on household budget and living standards used to estimate official poverty statistics for the Palestinian Territories. PECS was implemented by the Palestinian Central Bureau of Statistics (PCBS). The PECS 2016/2017 is a 12month survey covering 3739 households and implemented from October 2016 to September 2017. The survey has information on income, employment, consumption, health, and education.

- Tax legislation and comprehensive administrative data on direct and indirect taxes, tax rates, tax collection, and executed government expenditure data from MoF and World Bank teams.

- Social protection data from the main social programs on budget, beneficiaries, and allocation rules from the MoSD and the World Bank Social Protection team.

- Data to calculate the subsidy value for domestic electricity distribution and fuel from the Ministry of Energy and the World Bank Energy team.

- Education expenditures and student enrollment from the Ministry of Education and World Bank Education team.

- Health expenditure and health visits from the Ministry of Health and the World Bank Health team

- Supply and use tables from 2017 for the West Bank and Gaza from the World Bank Macroeconomics, Trade, and Investment team.

- The 2017 Labor Force Survey (LFS) on labor informality and public sector employees, also implemented by the PCBS.

## **3.2 Commitment to Equity (CEQ) framework**

### **This study uses the Commitment to Equity (CEQ) methodology to implement a fiscal incidence analysis**

**of the main taxes and public social transfers of the West Bank and Gaza in 2017** . A CEQ Assessment is a rigorous and standardized fiscal incidence methodology that permits systematic analysis of how different tax and public expenditure options affect the welfare distribution. CEQ uses a common framework

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