The team captures the estimated impacts of energy subsidies and indirect tax policies as they are actually implemented, not as they are described statutorily. For example, not all energy is consumed by households, and not all goods and services are standard-rated VAT products. In Zambia, the mining sector accounts for a large portion of total electricity subsidy expenditure. Households’ electricity purchases account for a much smaller share. The subsidies captured by the mining sector likely are passed on as lower mining-sector output prices to other firms or producers that use mining products as inputs. When these firms pass on embedded input subsidies to the final prices of their own goods, even subsides captured by the mining sector can produce a benefit for the final consumer. This study estimates these indirect effects of subsidies and the VAT regime and includes the indirect benefit (or burden) via the same imputation procedure based on consumption expenditure records described above.<sup>27</sup>

# _In-kind transfers_

Receipt of in-kind benefits is based on directly identified utilization of the public education or public health care system. The LCMS records how many household members are enrolled in the public education system (and at what levels) and whether any household members recently visited a public health care facility. The monetized value of the in-kind transfer is based on the “government cost” approach. For example, total education expenditures are divided by the total number of users (students) to get a uniform per-user cost of producing and delivering the service. This per-user cost then is defined as the value of the transfer received. This cost represents what the utilizing household would have to pay to acquire the service at the government’s cost.

We used disaggregated (by facility type) administrative data to guide our estimation of the government cost of a health care or education service acquired. For health, we used administrative summaries of Health Ministry and Ministry of Community Development and Mother and Child Health expenditure to allocate specific expenditures to hospital and clinical care providers. For example, the public expenditures transferred to public hospitals for personnel and medical goods (including medicines) is not equivalent overall or on a per-facility basis to public expenditures for the same items for public clinic-based health care.

Also for health, we utilized Zambia’s DHS to impute to each LCMS household a propensity to visit a public health care provider (when health care services were acquired) as well as an expected share of total cliniclevel and hospital-level visits over a 12 month period. Each LCMS household then has an imputed share of clinic-level and hospital-level public health care expenditures that may be different from their actual share of clinic-level and hospital-level health care expenditures over the 2-week recall period and conditional upon illness or injury recorded in the LCMS. We use the imputed share over a 12-month period to allocate public health care expenditures.<sup>28</sup> Note that for both public health and education services, the estimate of the value of the benefit we allocate is limited by the information available. For example, we can separate clinic-level visits from hospital visits in the micro-data; and we can separate clinic-level public expenditures from hospital-level expenditures; but we cannot further determine exactly which service was received at either clinic or hospital. As we are

> 27 This study follows the methodology developed described in the Commitment to Equity Handbook (Lustig, 2016), Chapter 4 to allocate the _indirect impact_ of indirect taxes on the prices of goods and services acquired in the private market.  Basically, the Handbook suggests solving a price-shifting model – with an Input-Output matrix as the empirical description of price determination in the production side of the economy – assuming _inelastic_ demand for all goods and services and fixed technologies of production. That is, producers “push” any input taxes paid (subsidies received) onto the final price of the goods and services thereby raising prices (lowering prices) relative to a no tax (no subsidy) counterfactual.

> 28 Additional details about each of these allocation procedures, including the assumptions made, is available in section C of the Zambia CEQ Master Workbook.

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