Public school education is free, although households pay for textbooks and food out of pocket; private schools and colleges exist, but they are few and negligible in their coverage. At the tertiary level (vocational, specialized and college education) fees are widespread, and access to free education is conditional on performance. Usually the fees are below the total education cost.

As the primary and secondary school enrollment rates are 100% or higher in Belarus (World Bank, 2013), we allocate the preschool and primary and general secondary education expenditures to all children of ages 3-10 and 11-16 correspondingly. At 16 children graduate from the obligatory school, and are free to either continue in high school to enter college, go to the labor market or enroll in the vocational or specialized educational institutions. Since 2015 HBS data lacks information on the socioeconomic status, and we do not observe whether a young person is a student or not. To impute the probability of being a student, we use 2014 data which still had the socioeconomic status variable. We build a probit probability model for people aged 16-40, with age, gender, region, residence type, household size and education level being the explanatory variables. After imputing the probability of being a student, we assign expenditure on continued secondary and college education according to age. We do not scale down health and education expenditure. The main reasoning behind scaling down is that normally all the taxes and transfers in the CEQ analysis are not forced to be equal to their counterparts in the national accounts (see Higgins, Lustig, 2016). However, in our exercise the allocation of most of the taxes and transfers are quite close to their counterparts in the national accounts.

Major education expenditure categories, primary and secondary education, are highly progressive both in relative and absolute terms, as seen in Figure 12b. Households with children, the main recipients of educational expenditure, are on usually poorer (in per capita terms) than households without children; poorer households also tend to have more children. The expenditure on college (higher school) education, in contrast, is regressive in absolute terms, as individuals from higher-income households are more likely to enroll in colleges.

# **4. Results and discussion**

# **4.1. Main results**

The results of the CEQ analysis show that fiscal interventions contribute much to the reduction of inequality in Belarus if the pension system is modeled as a part of fiscal policy. Most of the effect on inequality comes from direct transfers and privileges in the case when pensions are treated as a government transfer (PGT) (see Figure 13). The decrease in inequality indicators calculated for market and disposable income, when pensions are viewed as a government transfer, is massive, from 0.407 to 0.267 for the Gini index. Particularly large improvements are observed for the ratio of the average income of the richest 10% to the poorest 10% - from 14.82 to 3.25 (see Table 7). A significant number of people without market income relying on direct transfers, on pensions in particular, explains this result<sup>20</sup> . When pensions are alternatively modelled as deferred income (PDI), the reduction of inequality related to fiscal interventions determining the difference between market and disposable income is only marginal. Furthermore, moving from disposable to consumable income does not influence the overall level of inequality, implying that the burden of indirect taxes and gains from indirect transfers is distributed among population proportionally to income. In-kind transfers are clearly more progressive, as inequality indicators fall substantially from consumable to final income.

Fiscal interventions also determine the level of absolute poverty. According to the international poverty lines of 2.5 and 5 USD PPP per day the risk of poverty is eliminated in Belarus at the level of disposable income. Moreover, the risk of absolute poverty at these lines is also negligible according to the market income concept when pensions are treated as deferred income (PDI). Only when excluding pensions from market income (PGT approach), poverty lines of 2.5 and 5 USD PPP per day can reveal some vulnerable population, as some households rely heavily on pensions. The risk of poverty is much higher if one considers the line of 10 USD PPP per day (which is often used for defining the middle class in international studies) or the national poverty line. In fact, the subsistence minimum in Belarus – national absolute poverty line – exceeds 10 USD PPP line, implying relatively high overall level of income in the country if measured in USD PPP terms. Hence, we will use national absolute poverty line as a main benchmark for analyzing the influence of fiscal policy on poverty in Belarus. For a more detailed analysis of vulnerable groups of population one can also apply the minimum consumer budget as a national moderate poverty line.

> 20 3.5% of the population lives in households without market income (modeled by the PGT approach).

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