# _Source_ : Belstat.

HBS data are used by the Statistical Committee while computing national accounts. However, HBS data permanently underestimate household consumption if compared to retail statistics. In 2015 the scale of underestimation was extraordinarily high (37.4%, see Figure 5). First, it is related to the increased volume of consumer lending. A purchase of goods on terms of consumer loans is reflected in the survey as loan servicing expenditures by households instead of consumption expenditures, which creates differences between HBS and retail statistics. Therefore, disposable income of households calculated based on total expenditures within HBS is substantially lower (22.3%) than estimated within national accounts. Second, households traditionally underreport expenditures on alcohol consumption, which is a common problem of the surveys. Third, households tend not to report purchases of tobacco and fuel (and alcohol as well) for the purpose of further resale abroad, which is a widespread coping strategy in western regions of Belarus. Hence, these expenditures, accounted in retail statistics, are not actually household consumption, but rather costs associated with their entrepreneurial activity, so they should not be taken into account while calculating households’ consumption or disposable income.

HBS data can be used to estimate household welfare and overall macroeconomic effects without additional adjustments as it represents almost the whole population and covers household expenditures in full, with the exception of alcohol consmption. Belstat uses these data for poverty and living standard analysis. Poverty analysis is based on comparison of disposable household income with the absolute poverty line. Disposable income is officially calculated as a sum of total household expenditures, net in-kind income and privileges (in-kind benefits). Hence, it is calculated based on reported expenditures rather than reported income, as it is believed to be underestimated (total reported cash income was 3.5% less than total reported expenditures in HBS 2015). The absolute poverty line is set at the level of subsistence minimum for a member of a household containing two adults and two children.

Following the official approach and assuming underreporting of households’ income, we also conduct the CEQ analysis based on disposable income data, assessed through the expenditure side. We also apply the same national poverty line for analysis of fiscal effects on poverty. However, we are not able to match the official estimate of poverty for 2015, as Belstat uses quarterly data for its estimation, while we work with the annual file. In addition to the national poverty line, we also calculate moderate poverty based on the annual average minimum consumer budget set for a member of a household containing two adults and two children. Nowadays, this budget is not widely used for the purposes of social policy. Still it is believed to serve a threshold for determining households with a risk of vulnerability. For instance, it is used as an eligibility criterion for privileged loans.

The core element of the CEQ analysis is the calculation of income concepts. Based on available data, we take disposable income as a starting point (see Figure 6). Subtracting reported direct transfers from disposable income and adding estimated direct taxes, we calculate market income. There are two approaches of assigning direct taxes and transfers based on the pension system of a country. Pensions can be viewed either as a government transfer (PGT) or a deferred income (PDI). In the first case, it implies that social security contributions are accounted as direct taxes while pensions are added to direct transfers. In the second case, pensions and related contributions are not taken into account while estimating market income – pensions are considered as a part of both market and disposable income concepts.

The pension system in Belarus is purely pay-as-you-go. The link between contributions and actual pension payments in Belarus is quite weak (see Section 2.3). From this point of view, is it more natural to consider pensions as transfers similarly to other contributory programs (like unemployment benefits).

The pension system in Belarus is redistributive, effectively weakening the link between the market income and pension income after retirement. Hence, even if we agree that the effects of the pension system on poverty are debatable, the redistribution effect is the direct consequence of the government fiscal policy and should be taken into account when the fiscal effects are analyzed.

Finally, two important benchmark cases for the Belarus CEQ study – Russia (Lopez-Calva et al., 2017) and EU (based on EUROMOD) consider pensions as public transfers in the main scenario (in case of Russia) or as the only scenario (EU). Similar treatment of pensions in Belarus will allow for proper comparison with these countries.

For the above reasons, we chose to model pensions as government transfers (PGT) in our primary scenario. We also consider the alternative approach. Pensions are often viewed not as a handout from the state, but rather as something earned in the working age. Hence it might make sense to view pensions as deferred income (PDI). Methodologically it means that now we include pensions into the definition of market income, or, since we go from consumption, we do not subtract pensions when going from disposable to the market income. Direct taxes 11