power, the team refrains from labeling taxes “pro-poor,” although when taxes paid (measured as a share of pre-tax income) increase with income levels, they are by definition progressive. In everyday usage, for example, the team often calls a marginal income tax rate schedule that has increasing marginal rates by taxable income bracket a “progressive” income tax.

Two indicators we use to understand how a fiscal policy element is progressive or regressive are the **_concentration shares_** and the **_incidence_** of a fiscal policy. Concentration shares calculate the share of the value of fiscal policy captured by (or imposed on) a subset of the population such as the poorest 10 percent of individuals or the richest 10 percent of individuals. For example, if the richest 10 percent of Zambians pay 75 percent of the total PAYE taxes collected in a given year, then the richest decile’s concentration share of PAYE taxes is 75 percent (and that in turn implies that the other 90 percent of Zambians pay _no more than_ 25 percent of total PAYE revenues). The incidence of a fiscal policy element calculates the value of a benefit captured (or a tax imposed) _relative_ to the value of income _before_ the benefit was received or before the tax was imposed.

While a pro-poor transfer is always progressive, the reverse is not necessarily true. Likewise, in a fiscal system with more than one element, a pro-poor or progressive transfer (or a progressive tax) is not necessarily inequality reducing. **This study incorporates every type of fiscal policy element listed in Figure 3** . The team adjudged the income module in the LCMS to be unreliable.<sup>20</sup> Team members felt the LCMS likely would lead to under-reporting of income of those with little to no income from the (incomplete) LCMS list of income sources as well as of those with very high incomes (from any source). Therefore, the study uses consumption expenditure as the measure of **_primary_** income. The team assumes that total consumption expenditures––including the value of imputed rent for those living in owneroccupied housing as well as the implied value of any auto-production/auto-consumption––are equal to the CEQ Disposable Income concept (approximately in the middle of the flowchart in Figure 3). The team then works “backwards” and “forwards” from Disposable Income to other CEQ income concepts to arrive at pre- and post-fiscal measures.<sup>21</sup>

> 20 Consumption usually is preferred over income for four reasons. (1) **_Consumption is a better outcome indicator._** Actual consumption is related more closely to a person’s well-being in the sense of having enough to meet current basic needs. In contrast, income is only one of the elements that will enable consumption of goods. Other elements include questions of access and availability. (2) **_Consumption may reflect better a household’s ability to meet basic needs._** Consumption expenditures reflect not only the goods and services that a household can command based on its current income, but also whether that household can access credit or insurance markets when current income is low or even negative. Thus, consumption can provide a better picture of actual living standards than can current income, especially when incomes fluctuate greatly. (3) **_Consumption may be more accurately measured than income._** Especially in poor agrarian economies, incomes for rural households may fluctuate during the year, in line with the harvest cycle. Fluctuation implies that householders may have difficulty in correctly recalling their incomes, causing the income information to be of low quality. See, for example, Bollinger and Hirsch (2013) or Bollinger and Hirsch (2007) for thorough treatments of the difficulties created by recall error and item non-response in socioeconomic survey income modules.  (4) **_Large shares of income are not monetized if households consume their own production or trade it for other goods._**

> 21 Consumption expenditure is the team’s primary income measure. Moreover, all other income concepts including market income are derived from consumption expenditure. For these reasons, the team does not create a Taxable Income (TI) concept. Other CEQ Assessments do produce this income concept when relevant. Creating a Taxable Income concept requires knowledge of the composition of Market Income. A Zambian household’s expenditure profile in the LCMS cannot provide any information on the composition of its income. For the same reason, the team is unable to say anything about the savings or current asset profiles of LCMS households: a current consumption expenditure profile provides no information on either investment spending or on the returns accruing to any household assets.

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