The imputed value of own dwelling was obtained with a hedonic price model, where household rent is a function of the dwelling characteristics, including location, structural attributes and neighborhood characteristics (see Balcázar et. al, 2017). In particular, we estimate a model where the value paid for housing rents is a function of the number of rooms, the number of bathrooms, whether the household belongs to an urban or rural area, the state of the federation to which it belongs, an interaction term between the state and area of residence, access to sanitary services, access to drinking water, as well as the materials of the floor, ceiling, and walls. The fitted coefficients from the previous regression with information from homeowners were the source of the estimated imputed value of homeownership.

# 3. Impact of the fiscal system on poverty and inequality

## 3.1 Net payers and net beneficiaries

We first assess the impacts of fiscal policies by analyzing households’ changes in their net cash position and total fiscal position. The net cash position is the combination of taxes and transfers within each quintile of the pre-fiscal income distribution. Figure 3 panel a shows, for each quintile, the incidence of fiscal interventions according to households’ MIPP. The fiscal interventions that represent an income gain to the household are shown with positive values in the horizontal axis, while those that represent an income loss are shown with negative values. The net cash position (green dotted line) shows each quintile’s sum of all cash interventions. Meanwhile, the total fiscal position (blue dashed line) includes all interventions, including in-kind benefits (such as education and health). Hence, the net cash position is related to consumable income, while the total fiscal position is related to final income.

Quintiles one and two are net cash beneficiaries of the fiscal system, with a cash gain equivalent to 169.8 and 1.4 percent of their market income plus pensions, respectively. In contrast, the rest of the households are net payers of the fiscal system. The cash loss ranges from -10.1 percent of MIPP in quintile 3 to -22.2 percent of MIPP in quintile 5. The net cash position for the first quintile seems high due to a sizable population whose livelihood heavily depends on direct transfers and that have a very low level of market income plus pensions. 29F<sup>30</sup> While households in quintile 2 are net beneficiaries of the fiscal system, their net benefits are low. Finally, when looking at the total fiscal position of households (blue dashed line), which includes the in-kind benefits from health and education, the results show that quintiles 1-3 are net receivers, while quintiles 4-5 are net payers of the fiscal system.

To illustrate how important the transfers are for disposable income (i.e., market income plus pensions minus direct taxes plus direct transfers), Figure 3 panel b illustrates the patterns of the net cash and fiscal position using households’ disposable income as a benchmark. Similar to the incidence using the MIPP as reference, the first two quintiles are net cash beneficiaries, while the first three quintiles are fiscal beneficiaries.

> 30 According to market income plus pensions estimates made using PNAD-C and POF, around of 2.7% of the individuals of the first quintile report a market income plus pensions equals to zero. Such households rely on receiving rural pensions, BPC pensions, unemployment benefits, and other direct transfers.

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