For each income concept, the inequality and poverty indexes are calculated and both magnitudes are compared before and after fiscal interventions. In this regard, the CEQ framework considers variants according to the characteristics of each country, harmonizing the aggregates but not the specific items.

# **4.1 Income Aggregates Estimation**

Grenada’s information system has limitations when it comes to applying the detailed CEQ framework. Certain data characteristics are needed to model fiscal incidence within this framework, such as an adequate household income aggregate. While Grenada has conducted the SLCHBS recently,<sup>9</sup> as well as maintaining administrative records of social programs and the characteristics of the tax system, the module of incomes within the SLCHBS is limited. The survey captures income data in brackets, records few details on nonlabor incomes, and does not have information on pension affiliation or amount received by individuals, so it is not possible to construct net market income plus pensions for this exercise in the Granada context. Thus, the NSO opted for building welfare aggregates from household consumption<sup>10</sup> instead of household income. This poses a challenge for the implementation in this paper because we need household incomes to estimate the fiscal incidence and run simulations. Following (Katayama & al.,2021) for the case of Jamaica, in this paper we assume that current consumption equals disposable income.<sup>11</sup> This assumption is the most important for applying the CEQ methodology to Grenada, in that it simplifies the reconstruction of income aggregates by tracing back to market income definition as our measure of base income (before taxes or fiscal interventions). As is known in the estimation of welfare measures in developing countries, the distribution of household consumption tends to be more concentrated than income. Of course, this characteristic could introduce some bias and underestimate the extremes of the distribution; however, there is no other option in the absence of household income data.

Once household consumption is defined and thus consumable income is available, the rest of the income aggregates established in the CEQ methodology are calculated according to the tax structure, social protection, and social delivery in Grenada. Our point of departure is disposable income, which is reported by the survey and is assumed to equal household consumption. Then, to identify the distribution of gross income and, after that recreate the distribution of the market income, it is necessary to work backward, following the steps shown in Figure 4: _Net market income (NMI):_ This concept (a pretax income) is obtained by adding the amount of personal income tax ( _PIT_ ) to disposable income ( _DI_ ): N NN= DDNN+ PPNNPP

> 9 Through the NSO, Grenada implemented SLCHBSs in 2007–08 and 2017–18. The latter (used in this paper) collected information on household characteristics (housing, demographics, education, health status, social protection, and shocks and coping strategies). In addition, this survey focused on household consumption expenditures on food and nonfood items and other transactions such as financial payments, investment acquisitions, fees, and voluntary contributions.

> 10 This consumption aggregate is constructed from the following components: (1) expenses and received gifts of food and beverage items, (2) expenses of nonfood articles, (3) value of consumption of durable goods (such as vehicles), and (4) imputed rent of own housing. Household consumption was used as the basis for the official measurement of poverty and inequality in Grenada (World Bank 2021), following the guidelines for measuring welfare aggregates (Deaton and Zaidi 2002).

> 11 Other studies that use consumption as primary income are Lara Ibarra et al. (2019) (Arab Republic of Egypt), World Bank (2018), (Kenya), and Majia-Mantilla et al. (2019) (Uganda).

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