the surtax rates across all the municipalities and cities, including those with zero surtax rate. The calculated rate is estimated at 8.79 percent.

The burden of indirect taxes is assumed to be borne entirely by the consumer. The burden of indirect taxes was estimated by applying statutory rates to the detailed consumption data in the HBS, which were mapped into the Croatian Classification of Goods and Services for which VAT rates are defined. Note that as in most household surveys, total consumption of households in HBS using the weights provided by the National Statistics Office amount to 77 percent of total household consumption reported in National Accounts. No assumptions about informality are made, such that using statutory rates, the amount of VAT calculated using the HBS constitutes 67 percent of total tax collections paid by the households. For excise taxes, we apply statutory rates to consumption of alcohol, tobacco, fuel and automobiles identified in the HBS to estimate the direct burden of these excises on households. Once the burden of each of these taxes was estimated, we followed the survey-to-survey imputation technique detailed in Appendix 2 to assign indirect tax burdens to households in the PIS. For both direct and indirect taxation, we employ statutory rates.<sup>6</sup> On the spending side, the PIS provides detailed information on who received payment from contributory and non-contributory social protection programs. In terms of contributory benefits, family benefits including the maternity and parental benefits are identified in the survey. Similarly, unemployment, disability, sickness, survival, caregiver, housing and other benefits can be identified in the survey. In terms of non-contributory benefits, family benefits including the onetime grant for newborn children and the child benefit are directly identified in the survey. Similarly, social assistance benefits, including the subsistence, housing and lump-sum benefits are directly identified. Since these benefits are not taxable, the reported value can be directly used. Unfortunately, there is no way to identify beneficiaries of the programs for Croatian Defenders of the Homeland War (HBDR/HRVI) or beneficiaries of local government transfers. These benefits are therefore not included in the analysis.

The approach to estimate the incidence of public spending on education followed here is the socalled “benefit or expenditure incidence” or the “government cost” approach. In essence, we calculate per beneficiary input costs by level of education from government spending and the number of pupils in each level and assign the per pupil expenditure to each student. This approach is also known as the “classic” or “non-behavioral approach”, and it amounts to asking the following question: how much would the income of a household have to be increased if it had to pay for the free or subsidized public service at the full cost to the government?

> 6 This assumption could be modified to incorporate the possibility of informality by using an effective tax rate as opposed to the statutory rate. However, there seems to be under-reporting of incomes in the PIS household survey, which may to some extent reflect this informality. Further work to assess this aims to use household consumption instead of income as a point of departure will aim to better assess potential levels of informality.

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