income is never negative so that if the income is less than the transfer, the latter is adjusted to avoid the definition of income being negative.

# **_Estimated value of health care and education services received by households_**

Using data from the SLCHBS we identify individuals who used public education and health services and imputed values for the use of these services. Based on the utilization of health services by the individuals who responded to the survey, a distinction is made between those who received inpatient care and those who received outpatient care in hospitals and community health centers. We then found data on average unit costs by type of care and imputed it to the individuals who used the service to proxy for the state’s current expenditure on health services. As for education, we assume that the public education system serves the entire preschool, primary, secondary, and postsecondary school population. The current expenditure on education was derived from the costs per level of education specified by the Grenada government. Once the annual cost of each level of education was obtained, it was imputed to each student in a household according to the level at which they were enrolled.

Due to the information limitations on household income structure and national accounts in Grenada, we could only perform a basic application with direct effects, omitting considerations on agents’ behavior. As more information and parameters on fiscal interventions become available, they could be added to the estimates of fiscal incidence.

# **5. Main Results**

A set of poverty, income distribution, and indicators of progressivity measures were constructed to answer the questions posed above. Next, we present the main results of the simulations.

# **5.1. How Does the Fiscal System Affect Poverty?**

The fiscal system has a high potential for poverty reduction in Grenada (table 1), with the highest impact being associated with in-kind transfers. After adjusting the disposable income, the poverty rate in Grenada for 2018 reached 22.77 percent under the definition of consumption per equivalent adult (equivalent to the definition of disposable income in this document), using the national poverty lines as defined by the CSO (EC$6,782 per year per person, 2017–18). Departing from this measure, the model builds all the other income aggregates as described in the previous section. In the absence of fiscal interventions, such as PIT and cash transfers, 25 percent of the population would live in poverty, with an estimated poverty gap of 8.24 percent. Moreover, after accounting for all taxes and direct transfers, the poverty headcount would be 26.35 percent. In sum, four relevant aspects can be noted. First, the direct transfers (SEED and School Feeding Programme) reduce the incidence of poverty by 2.2 percentage points; these are also reflected in other indicators sensitive to changes in income distribution among the poor, such as poverty severity and the Sen and Watts indexes. Second, the PIT does not change the poverty measures, because it is paid by the population with incomes above the national poverty lines. In fact, based on our estimates, only around 10 percent of the employed population has earnings high enough to be subject to the PIT. Third, indirect taxes such as the VAT (and excise taxes) increase poverty by about 3.6 percent; this is explained by their being structured to be neutral taxes.

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