# **Appendix A** . **Implementation of the CEQ Fiscal Incidence Methodology in Niger**

# **CEQ Methodology**

The general objective of the CEQ methodology is to assess the impact of a state’s fiscal policy and its public spending on household welfare. This method seeks to identify which households are bearing the burden of taxes, and which are benefitting from state social spending. The method uses two types of data: **_macrodata_** from the state budget and national accounts, and **_microdata_** from household surveys. Eligible households are allocated the amount of social spending they have received and the taxes they have paid, using institutional criteria and household survey data. When information is not available from a household survey, information from other sources, like the government budget, may be used. The analysis uses various income concepts to measure the implications of each fiscal intervention.

**_Market income_** is the prefiscal income, or an individual’s income _before_ any fiscal intervention. It includes gross income from labor and capital, self-production, and private transfers. **_Net market income_** is constructed by deducting direct taxes paid from the market income. The direct taxes included here are taxes on salaries and wages. **_Disposable income_** is obtained by adding direct transfers to the net market income. Household consumption is assumed to be equal to disposable income. That assumption is often used in low-income economies, where the data available on consumption are more reliable than data on income and savings. Other income concepts are calculated using a backward-and-forward approach. The direct transfers considered are scholarships and other support to students, and school feeding programs. The beneficiary households are directly identified in the microdata for the former, and they are randomly selected on the basis of the rules and the geographical areas covered by the program for the latter.

When indirect subsidies are added to disposable income, and indirect taxes are deducted, the result is **_consumable income, or postfiscal income_** , that is, household income after the various fiscal interventions. Agricultural subsidies are the only type of indirect subsidies considered. Indirect taxes include VAT, import taxes, and other indirect taxes. Given the importance of the informal sector in Niger (informality contributes approximately 70 percent of the GDP according to the National Institute of Statistics), the risk of tax evasion is high. The rates used for the various indirect taxes are therefore effective rates, and they are calculated based on the Niger 2012 Social Accounting Matrix (SAM) rather than the statutory rates. Moreover, in addition to the direct effects of indirect taxes, indirect effects are included using the input-output matrix from the 2012 SAM. The overall effect of indirect taxes on household welfare is therefore equal to the sum of the direct effect and the indirect effect, and this is calculated following the Paasche variation by assuming price-inelastic demand. The **_final income_** is computed by adding the monetized value of public education and health services net of payments made by households to benefit from those services.

Once all the income concepts are defined, the measures defined in Section 3 can easily be applied, considering market income as the prefiscal income and final income as the postfiscal income, to determine the fiscal impoverishment effects.

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