the Appendix), great care has been taken to guarantee that all studies in consideration have used a similar methodology as ours.

The first step consisted of gathering data on social spending and government revenues at the national level, disaggregated by spending and revenue category (i.e., spending on primary education and public universal health, or revenues from income and VAT taxes). These data usually stem from the countries’ National Accounts. We also had to collect information on spending and taxation rules, such as who is eligible for a specific direct transfer, the progressiveness of income taxes, and the level of value-added taxes for each consumption good. In doing this exercise, one of the difficulties was to determine the share of social spending and taxation that is actually received or paid by households. Generally, identifying taxes paid by households required more assumptions than those needed to identify the elements of social spending aimed at the households, although the treatment of administrative and overhead expenses made the spending side of the equation as challenging as the tax side.

In a second step, we allocated social spending and taxation among households. Each tax or social spending item was allocated according to household members’ utilization of particular programs and to assumptions about the incidence of specific programs or taxes. Finally, households have been ranked according to their income level and then split into income quintiles.

Although the methodology represents one of the best ways to study the incidence of social spending and taxation, it still presents some caveats. Dilnot _et al._ (1990), for instance, point out the potential inconsistency in assuming “both perfectly inelastic commodity demands (in order to attribute all indirect taxes to consumption), and perfectly inelastic factor supplies (in order to attribute all income taxes to labor).” Similarly, authors who use general equilibrium models to estimate tax and spending incidence point out that our methodology fails to account for the consumer surplus from public goods and for the marginal welfare costs of taxation. Also, assuming the unit cost of provision to be equal to the value of the benefit to the households, failure to capture some important second order effects on welfare, and ignoring behavioral responses are some of the limitations of incidence studies highlighted by Van de Walle (1996). However, despite these caveats, other, more sophisticated methodologies would not necessarily lead to better results: as Van de Walle (1996) states, it would be incorrect to “automatically assume that more complicated models will produce better or fundamentally different policy advice.” In fact, we refrain from estimating tax shifting parameters or any measure of dead weight losses because results from these estimations are very sensitive to parameter specifications, so that it would not be possible to estimate these parameters and measures consistently for all the countries analyzed in this study (see, among others, Selden and Wasylenko, 1999; Wolff, Zacharias and Caner, 2004; and Harris, 1999). Moreover, as previously stated, our aim is simpler, as we only aspire to determine the broad distributional patterns of actual tax payments and social spending across income groups.

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