We utilize this administrative database for two years, 2017 with 7,442 observations and for 2018 with 8,146.

Because income information is not available in the survey, we compare the administrative data, specifically the taxable portion, with the consumption estimation. This allows us to obtain a more comprehensive understanding of the income distribution. In some cases, we complement missing survey information with administrative data. Because this data set is disaggregated by gender and occupational category, both with values for the taxable income, the administrative data prove useful. Additionally, the administrative data enable us to compare the income distribution to ensure data consistency and improve the exercise's macroeconomic validation. The result is an accurate set of information that makes constructing the taxable income distribution possible.

# **4. Methodology**

This paper uses the Commitment to Equity (CEQ) methodology to assess the distributional impact of the fiscal system in Grenada. According to Lustig (2018), “The CEQ Assessment is a diagnostic tool that uses fiscal incidence analysis to determine the extent to which fiscal policy reduces inequality and poverty in a particular country” (62). Fiscal redistribution effects refer to the process by which a state collects revenue from individuals and households (through taxation) and allocates this revenue to finance direct transfers, subsidies, and in-kind benefits individuals and households enjoy (Lustig and Higgins 2018). Because this study focuses on the distributional effects on the population, state interventions that affect firms or other privatesector institutions are excluded from the methodology. The CEQ framework aims to answer four main questions: (1) How much income redistribution and poverty reduction is being accomplished through fiscal policy? (2) How equalizing and pro-poor are specific taxes and government spending? (3) How effective are taxes and government spending in reducing inequality and poverty? and (4) What is the impact of fiscal reforms that change a particular tax or benefit's size and/or progressivity? (Lustig 2018).

To calculate the distributional effects of fiscal policy, the CEQ framework constructs different income concepts in sequential stages, starting from pre-fiscal income that includes only private income sources to final income that incorporates the (almost) full set of taxes and government benefits. In summary, the CEQ (Lustig and Higgins 2018) identifies four main concepts of household income (when the household surveys include variables of different sources of income).<sup>8</sup>

> 8 _Market income_ includes factor income (all wages and salaries received by workers and capital income), plus private transfers (remittances, private pensions, etc.) plus imputed housing rent, all income before taxes and social security contributions, government transfers and old-age pensions, minus the contribution to social insurance oldage pensions (only in cases where pensions are considered deferred. The contribution to old-age pensions is not subtracted when contributory pensions are financed by the state). _Disposable income_ is market income plus direct cash and near-cash transfers, minus personal income taxes and employee social security contributions (only when contributory pensions are treated as transfers). _Consumable income_ includes indirect subsidies (energy, food, and other general targeted price subsidies) and excludes indirect taxes (VAT, excise taxes, and other indirect taxes). _Final income_ (post-fiscal) is consumable income plus the value of in-kind transfers, such as free or subsidized government services in education and health with copayments and user fees subtracted; it reflects post-fiscal income.

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