than normal price; second, maintenance costs and; third, returns to capital investment. Hence the average production costs are an estimate based on reported costs of production and added costs for under-priced inputs, maintenance and capital returns.<sup>11</sup> This implies that the marginal subsidies, in the case of electricity, vary from a maximum of 164.8 MNT/kWh (in the case of upper bound costs and below-threshold vulnerable consumers) and 28.8 MNT/kWh (in the case lower bound costs and above threshold households with a single meter). The marginal subsidy per kWh is lower for those with higher levels of consumption, although the sum of subsidies they receive may be larger because of a bigger volume of electricity consumption (see Figure 1).

## **<mark>In‐kind transfers</mark>**

Investments in health and education are the foundations of individual and household well-being. The analyses of levels and trends of monetary measures of poverty repeatedly show that labor market earnings are the main force for poverty reduction. But labor earnings depend crucially on productive investments in health and education. Consequently, access to public health and education are in-kind transfers that rise the standards of living by allowing a family to afford basic productive investment in human capital. Moreover, its inclusion in this type of analysis underlines the important size of transfers that households receive in terms of public health and education.

Public health provision is extensive but has growing stresses due to changes in health risks. Even though Mongolia has significantly reduced the number of hospital beds over the last decade, the number of hospital beds was still around 7.2 beds per 1,000 population in 2015, which is much higher than that of other countries in the region (China, Malaysia, Philippines, Vietnam). However, the current delivery system is unable to address the growing burden of non-communicable diseases (NCDs). As NCDs expand, Mongolia will need to address both their underlying causes as well as increase early detection and chronic disease management.

Access to education is very high in Mongolia. The country has high enrollment rates in education. At 79 and 59 percent for women and men, respectively, tertiary education gross enrollment rates in Mongolia are the highest among comparison countries, and among the highest in the World. Similarly, gross enrollment rates for secondary education are 82 and 80, respectively, also very high in international perspective. Primary education gross enrollment rates are the same for boys and girls (86 percent).<sup>12</sup>

# **III. Methods, data and assumptions**

The methodology adopted in this study is based on the methods outlined in “ _Commitment to Equity Handbook. A guide to estimating the impact of fiscal policy on Inequality and Poverty_ ”, by N. Lustig (2016) and developed in a previous work (Lustig & Higgins, 2013). This methodology has

> 11 Data collected by (Schlirf, Johansen, Georgieva, & Wu, 2018) who estimate that actual production costs are approximately 51 percent higher than reported costs. This number refers to both electricity and central heating. This study separates this adjustment into 39% for electricity and 79% for central heating given that electricity companies report less deficit in their accounts than central heating companies. 12 Data from World Development Indicators.

6 MONGOLIA Distributional impact of taxes and transfers / May 2018