Rshiny Microsimulation Tool : Georgia Fiscal Incidence Analysis - Operational Manual

Overview & Synopsis

Reduction of poverty and inequality has remained at the forefront of the agenda of the government of Georgia. Although Georgia has made notable gains in income growth and poverty reduction over the past decade, certain challenges remain. As it aspires to become a high-income country and accede to the European Union (EU), poverty remains high at 47 percent, according to the upper middle income countries (UMIC) international poverty line (IPL), and at 15 percent, according to the LMIC IPL. Inequality rose in the 2000s and hovered around the World Bank’s new high inequality country threshold of 40 (Gini) at the start of the 2010s but has since fallen back to the mid-30s. The country is aging and faces an increasing fiscal burden from pensions, health spending, and an erosion of the tax base. Recent fiscal challenges make it imperative to assess the redistributive impact of fiscal policy by conducting a fiscal incidence analysis. Governments use fiscal policy to generate revenue to finance public spending, which affects income redistribution, living standards, and poverty levels. Fiscal interventions include direct and indirect taxes and, on the expenditure side, direct transfers, contributory pensions, subsidies, and the provision of health and education. The redistributive potential of these policies affects the households’ and individuals’ income equality and poverty. Fiscal incidence analysis helps in gaining a deeper understanding of the overall impact of a country’s fiscal policy on addressing poverty and inequality. The Fiscal Incidence Analysis (FIA) is designed to serve as a baseline for evaluation of current fiscal policy and potential policy reforms for fiscal equity and sustainability. This fiscal microsimulation tool is based on the FIA for Georgia by applying the Commitment to Equity (CEQ) methodology. The aim of this manual is to provide a detailed, step-by-step, guideline to use fiscal microsimulation tool of CEQ analysis and policy reforms in Georgia. The training manual is intended for practitioners and policymakers who want to analyze fiscal policy reforms and their impact on households in Georgia. The manual is structured in the following way: Section 2 provides an overview of the key concepts in a CEQ analysis. Section 3 discusses the data preparation before getting started with the actual analysis, followed by section 4 that elaborates on the distributional impact of Georgia’s fiscal policy. Section 5 starts with the using the tool for the baseline analysis. Section 6 is dedicated to the fiscal policy simulations. The manual concludes in section 7.