This simplified approach would draw on the World Bank’s POVCAL database, which includes income and/or consumption survey data for more than 180 countries, including 67 IDA/blend countries. Availability of the underlying microdata for each country depends on the agreements that have been made between countries and the World Bank, but, in many cases, it is anticipated that the microdata would be accessible via the respective country offices. While income data is available for many of the countries in the full database, income data is only available for five IDA/blend countries. Consumption data is available for 62 IDA/blend countries. In addition to the microdata, the POVCAL database provides, for each country, cumulative income or consumption distribution results across percentiles. Datasets are from between 2014-2019 for the vast majority of countries.

While the underlying microdata files would be required for each country to build a full microsimulation model, the publicly available percentile distributions can be used under a simplified modelling approach.<sup>38</sup> The simplified modelling approach would apply the PIT rules in place for single individuals to calculate the average tax liability applicable for each of the 100 percentiles. The income distribution and tax liability data would then be used to calculate Kakwani and Reynolds-Smolensky indicators of progressivity and redistribution. The modelling would account for any basic allowances or deductions, zero rate brackets, and the progressive PIT rate schedule. However, it would not account for any tax provisions that are contingent on family size – such as a child tax credit. While this simplification would be a significant concern for high-income countries, it is likely to provide less inaccuracy for IDA countries that apply far more limited use of such targeted support. A fixed adjustment would also be applied to the consumption survey percentile results to adjust for savings patterns and thereby better proxy for income.

The modelling results can be compared to the small number of countries for which full microsimulation models will be constructed as part of other projects over the period of the project. For example, a full microsimulation model will be constructed using newly available income survey microdata for Ethiopia in late 2022 as part of a project examining potential PIT reform in Ethiopia.

To enable up-to-date monitoring of progressivity in IDA countries, it is proposed that two sets of calculations be made for each country:

1. Modelling the tax rules for the year of the most recent income or consumption survey data, on that survey data.

2. Modelling the tax rules for each year from 2023-2025 on the most recent income or consumption survey data (inflation adjusted to the year of measurement 2023-25), to enable monitoring.

The second approach effectively would assume that the income distribution has remained unchanged between the survey year and the year of measurement. As income distributions can be expected to change relatively slowly, the older distribution should provide a reasonable approximation of the current distribution for most countries, with the small degree of inaccuracy a reasonable tradeoff against the benefit of providing a timely indication of effective progressivity.<sup>39</sup>

> 38 From the cumulative income/consumption distributions it is possible to ‘back-out’ the average income/consumption of each percentile (with the average income and population data that is also provided with the percentile results), thereby enabling this data to be used for PIT modelling.

> 39 This approach differs from a progressive capacity approach where the ‘base’ distribution would not necessarily have any link to the actual distribution. That is, we are using the older distribution as a proxy for the current distribution, not as a replacement for it.

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