fewer taxes than average. Health and education are again following their corresponding demographic patterns, with health expenditure more substantial for the elderly, and education – for households with children.

While the vulnerable groups in general get more than average out of fiscal transfers and pay fewer direct taxes, there is space for improvement. Currently the benefits are focused on families with children, and pensions – on the elderly, while other vulnerable groups, like people in the rural areas and youth, remain untargeted by social programs. Indirect subsidies are particularly badly targeted, often offering less than average support to the vulnerable groups.

# **4.5. Cross-country differences**

Figure 17 shows the results of CEQ analysis for several countries including Belarus. Countries are ranked by the Gini reduction effect with pensions modeled as government transfers. All the effects are going from market to disposable income. On average fiscal interventions decrease the Gini index by 0.036, and poverty by 6.05 percentage points. Belarus is doing better than average on both counts. However, it is lagging behind the EU28 group of countries in redistribution.

**Figure 17. Cross-country comparisons of redistribution and poverty reduction effect of direct transfers and taxes**

<!-- Start of picture text --> 0.25 45<br>Gini reduction Poverty reduction, % 40<br>0.20 35<br>30<br>0.15<br>25<br>20<br>0.10<br>15<br>0.05 10<br>5<br>0.00 0<br>Gini PGT Gini PDI Poverty ($4 PPP)<br>Georgia (2013) South Africa (2010) Sri Lanka (2010) Honduras (2011) Colombia (2010) Indonesia (2012) Bolivia (2009) Peru (2009) Dominican Republic... Guatemala (2011) El Salvador (2011) Mexico (2010) Jordan (2010) Costa Rica (2010) Ecuador (2011) Brazil (2009) Chilie (2013) Average Uruguay (2009) United States (2011) Russia (2010) Belarus (2015) Argentina (2012) EU-28 (2011)<br><!-- End of picture text --> _Source_ : Lustig (2016), own estimation based on CEQ methodology The fiscal impact in Belarus is similar to that of Russia in terms of the Gini index reduction. As in Russia, in Belarus the PGT scenario delivers more equalization than the PDI scenario (Lopez-Calva et al., 2017). Poverty reduction in Belarus is lower. However, it does not mean that the fiscal interventions reduce poverty less in Belarus than in Russia, it is merely the reflection of the fact that the 4 USD PPP poverty in Belarus is zero in disposable income, so the reduction in poverty is at its maximum possible level.

The Belarusian taxation has a very different redistribution impact when compared to the EU. In most of the EU countries, the PIT tax is equalizing due to its progressive nature. The flat PIT structure in Belarus, however, delivers very little redistribution, while the redistribution task is completely delegated to the expenditure side of the fiscal policy. Given the high level of possible tax evasion in Belarus, this design of the fiscal policy is optimal. The VAT tax, in contrast, is not regressive in Belarus, unlike in many EU countries. This is achieved through multiple VAT exemptions.

# **5. Conclusions**

This paper presents the assessment of fiscal incidence in Belarus using the Commitment to Equity (CEQ) methodology developed in Lustig & Higgins (2016). Using the household budget survey and aggregate data we have allocated fiscal interventions across households. The allocation allows us to measure the effect of fiscal policies on redistribution and poverty.

Fiscal policies in Belarus effectively redistribute income from the top to the bottom of income distribution - 97.5% of population with market income below 10 USD PPP benefit from these policies. The direct transfers (including pensions) and direct taxes lower the national poverty measure by 17 percentage points. They also decrease the Gini 34