allocations, individual-level data allow investigation of the potential welfare loss and gains by household members as a result of taxes and transfers (see e.g., Thomas 1990; Browning, Chiappori, and Lewbel 2013). The challenge, however, is allocating expenditures to household members. Some studies that applied the per capita method allocated equal shares of resources to each household member (Glick, Saha, and Younger 2004; Greenspun and Lustig 2013); others used adult equivalence scales <u>(Siddiqui 2009; Browning, Chiappori, and Lewbel 2013; Aziz et al.</u> 2016); and others applied a household structural model (Calvi 2020; Calvi et al. 2020). These approaches do not consider differences in consumption patterns.

This study applies a two-tier framework to assign expenditure items to individuals within the household. The first tier is based on direct identification of the item from the survey data. For these items, either there is gender-disaggregated data or the data can be assigned to either men or women based on consumption patterns, such as alcoholic drinks and stimulants like tobacco and _khat_ . The second tier is allocating non-assignable goods<sup>2</sup> using adult equivalent scale weight. The details of the allocation mechanism are presented in Annex 2.

# **2.2. Income Concepts**

The core of the CEQ approach is the application of different income concepts (Figure 1). This study investigates the redistribution effect by comparing six individual-level income concepts, computed as −∑ + ∑ ,where is post-fiscal income (income after taxes and transfers) for individual _i_ ; depending on the fiscal intervention being analyzed. It denotes gross nn nn ii ii jj=1 jj mm=1 mm ii income, net market income, disposable income, consumable income or: YY = II TT BB YY final income. _Ii_ is the market or pre-fiscal income for individual _I_ ; _j_ =1,2,3...n is the type of tax paid, direct or indirect, by individual _i_ ; and m=1,2,3...n is the type of transfers, including subsidies received by individual _i_ . Our starting point is disposable income, which is proxied in the 2018/19 Ethiopia Socioeconomic Survey (ESS) data by total consumption spending. In addition, we construct two intermediate income concepts following market income, namely gross income and net market income. _Gross income_ is the cash available when the government has distributed direct transfers. _Net market income_ is cash available after direct taxes. _Consumable income_ is calculated by subtracting direct and indirect taxes from the sum of market income, subsidies, and direct transfers received; for this study, it is derived from disposable income by adding subsidies and deducting indirect taxes, which are simulated using data on purchased consumable items. Similarly, indirect subsidies are estimated using ESS wheat and kerosene consumption data. _Final income_ is equal to consumable income plus the monetized value of in-kind health and education services, less any co-payments, user fees, and participation costs for those services. Moving from consumable to final income highlights the distributional effects of public spending on health and education.

> 2 Spending on non-assignable goods consumption includes domestic food consumption (food grown by the household, purchases, and gifts); consumption of food away from home; and some non-food consumption and utilities expenditures. Based on ESS data, spending on non-assignable food consumption averages about 80 percent of total non-assignable goods.

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