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Policy Research Working Paper 10570

Fiscal Policy Effects on Poverty

and Inequality in Cambodia
Wendy Karamba
Michal Myck
Kajetan Trzcinski
Kimsun Tong
Poverty and Equity Global Practice

September 2023
Policy Research Working Paper 10570
Abstract
This study assesses the short-term impact of fiscal policy, inequality, the degree of inequality reduction is small in
and its individual elements, on poverty and inequality in international comparison; and (iii) low-income households
Cambodia as of 2019. It applies the Commitment to Equity pay more in indirect taxes than they receive in cash ben-
methodology to data from the Cambodia Socio-economic efits in the short term to offset the burden. As a result,
Survey of 2019/20 and fiscal administrative data from var- the number of poor and vulnerable individuals who, in
ious government ministries, departments, and agencies for the short term, experience net cash subtractions from their
the assessment. The study presents among the first empir- incomes is greater than the number of poor and vulnerable
ical evidence on the impact of taxes and social spending individuals who experience net additions. Fiscal policy can
on households in Cambodia. The study finds that: (i) deliver more net benefits to poor and vulnerable households
Cambodia’s 2019 fiscal system reduces inequality by 0.95 through expanding social assistance spending. Cambodia
Gini index points, with the largest reduction in inequal- has embarked on this expansion during the coronavirus
ity created by in-kind transfers from spending on primary pandemic, bringing it closer in line with comparators.
education; (ii) while Cambodia’s fiscal system reduces
This paper is a product of the Poverty and Equity Global Practice. It is part of a larger effort by the World Bank to
provide open access to its research and make a contribution to development policy discussions around the world. Policy
Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted
at wkaramba@worldbank.org; mmyck@cenea.org.pl; ktrzcinski@worldbank.org; ktong@worldbank.org.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
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its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Produced by the Research Support Team

Fiscal Policy Effects on Poverty and
Inequality in Cambodia
Wendy Karamba 1
Michal Myck 2
Kajetan Trzcinski 3
Kimsun Tong4
Keywords: Fiscal Policy, Social spending, Taxation, Fiscal Incidence, Poverty, Inequality, Cambodia,
Commitment to Equity.
JEL Codes: D31, H2, H5, I38, O23
1
Economist, Poverty and Equity Global Practice, World Bank. Email: wkaramba@worldbank.org. 2 Director, Centre
for Economic Analysis (CenEA). Email: mmyck@cenea.org.pl. 3 Consultant, Poverty and Equity Global Practice,
World Bank. Email: ktrzcinski@worldbank.org. 4 Economist, Poverty and Equity Global Practice, World Bank. Email:
ktong@worldbank.org.
The authors are thankful to Jon Jellema and Mariano Ernesto Sosa for peer-reviewing the paper. We are thankful
to Matthew Wai-Poi for useful inputs, comments, and suggestions on the paper and to Rinku Murgai for overall
guidance. The authors would like to thank the Ministry of Economy and Finance of Cambodia (MEF) and the
Ministry of Planning (MoP), National Institute of Statistics (NIS) for making available data. The authors are also
grateful for the valuable comments on the results received from the Ministry of Economy and Finance during
consultations held in Phnom Penh in 2022 and on the draft document. Funding for the research was received from
the Global Tax Program Multi-Donor Trust Fund generously supported by the governments of Australia, Denmark,
France, Japan, Luxembourg, Netherlands, Norway, Switzerland, the United Kingdom as well as Bloomberg
Philanthropies. The findings, interpretations, and conclusions in this paper are entirely those of the authors. The
findings do not necessarily represent the view of the World Bank Group, its Executive Directors, or the countries
they represent. The World Bank does not guarantee the accuracy of the data included in this work.
1. Introduction
Sound fiscal policy is central for macroeconomic stability and growth, as well as for poverty and inequality
reduction. This can happen both through its influence on macroeconomic conditions (economic growth,
employment, and inflation) and through the distributional implications of taxes and public spending. For
instance, public spending that is well-targeted to poor and vulnerable households can effectively alleviate
the incidence and depth of poverty, support broader distribution of the benefits of economic growth (de
la Fuente et. al 2017), while at the same time leaving scope and resources for public interventions in other
areas. Fiscal policy thus plays a direct role in poverty and inequality reduction through redistributive
effects and how resources are collected and spent influences whether the fiscal toolkit achieves poverty-
reducing and equalizing goals. In the case of Cambodia, so far a comprehensive analysis of the
distributional implications of fiscal policy has been missing and this study aims to fill this gap.
In the decade to 2019, Cambodia sustained macroeconomic stability, including prudent fiscal
management, and robust growth. Strong and inclusive growth contributed to substantial poverty
reduction and shared prosperity. According to official statistics, poverty nearly halved nationally from 33.4
percent in 2009 to 17.8 percent in 2019/20. Inequality remained moderate in international comparison
with a Gini coefficient estimated at 0.32 in 2019/20, although this level of inequality represents a slight
increase since 2014. 5
This paper assesses the redistributive effects of Cambodia’s 2019 fiscal policy and its individual elements.
We apply an internationally recognized methodology developed by the Commitment to Equity (CEQ)
Institute to assess how taxes and social spending affect poverty and inequality. 6 The present analysis relies
on the 2019/20 Cambodia Socio-Economic Survey (CSES) and 2019 administrative data on taxes, transfers,
and social spending. The CSES is collected by the National Institute of Statistics (NIS) and the fiscal
administrative data is compiled by the Ministry of Economy and Finance (MEF).
The paper seeks to answer the following questions: How much are social spending, subsidy, and tax
policies contributing to redistribution and poverty reduction goals? How are specific taxes and
government spending contributing to equalization and poverty reduction? How would fiscal policy
reforms that change the size and/or progressivity of a particular tax or benefit affect inequality and
poverty? Within the limits of fiscal prudence, what could be done to make taxes and transfers more “pro-
poor”? Such evidence can inform policy makers and other stakeholders in assessing existing fiscal
instruments and in designing reforms.
The 2019 fiscal system in Cambodia, and many of its elements, reduced inequality but also left poor
households out-of-pocket in the short term. 7 According to the Fiscal Incidence Analysis using the CEQ
methodology, the modeled fiscal system in Cambodia decreases the Gini index by 0.95 percentage points.
Spending on primary education shows the largest benefit on inequality, complemented by direct taxes,
5
World Bank (2022a).
6
See Lusting and Higgins (2018) for a description of the CEQ methodology.
7
Note, some of the findings of this paper are featured in the 2022 Cambodia Poverty Assessment.
2
which the CEQ approach estimates to be largely progressive. Despite the decrease in inequality, the
degree of redistribution is small by international comparison. At the same time, the analysis estimates
that poorer households pay more in indirect taxes than they receive in cash benefits in the short-term.
The fiscal system increases the short-term measure of the poverty headcount by 2.1 percentage points.
Although direct transfers to poor households have a poverty-reducing effect, they are not large enough
to offset the poverty-increasing effect of indirect taxes—notably of value-added tax that is levied on
consumption. While poorer households are worse off on average in cash terms in the short-term, it is
important to note the analysis does not account for the longer-term economic benefits of health and
education services to households which will help reduce poverty. Subject to available funding, cash
transfers at a scale large enough to compensate for the burden of taxes has the potential to deliver net
benefits to poor and vulnerable households, while improved targeting would help to reduce the overall
costs of such expanded program.
Cambodia is not alone among developing countries in seeing short-term poverty increase due to the
modeled elements of fiscal policy. Because the CEQ methodology has been consistently applied in over
60 countries, the exercise allows Cambodia’s performance to be compared with peer lower-middle-
income countries. Several lower-middle-income countries experience net poverty increases due to their
fiscal policies which is not surprising given the frequent heavy reliance on indirect taxation. Nonetheless,
some low and lower-middle income countries have more poverty-reducing effects of fiscal policy.
It is important to note that the presented Cambodia fiscal assessment predates the COVID-19 pandemic.
Hence, the results may be different at present due to the scale up of cash transfers to poor and vulnerable
households in response to the pandemic. As of January 2023, the COVID-19 cash transfer program has
disbursed US$ 932 million since the launch in June 2020. The program has been the largest component of
the government’s support package. Spending on cash transfers rose from less than 0.1 percent of GDP in
2019 to 0.7 in 2020 and 1.4 in 2021. The program has reached about 690,000 households and 2.7 million
individuals, or about 17 percent of the population, up from 2 percent pre-pandemic. 8 Box A.1 in the
Appendix summarizes the government’s fiscal response to the crisis.
The next sections are organized as follows: Section 2 provides an overview of the main taxes and transfers
in Cambodia, including the size and composition of these fiscal tools. Section 3 describes the methodology,
empirical approach, and data sources. Section 4 presents the main findings for Cambodia and in
comparison with other countries. Section 5 describes the results from the simulations that examine the
poverty and inequality effect of expanding cash transfers to poor households. Section 6 concludes and
highlights the implications of the results for Cambodia.
2. Taxes and Social Spending in Cambodia
Evolution of government revenues and spending between 2009 and 2019

In the decade leading up to 2019, Cambodia experienced strong economic growth that raised the incomes
of the poor and reduced poverty. This took place under a period of macroeconomic stability and prudent
8
See World Bank (2022a) for summary of the government’s fiscal response to the crisis.
3
fiscal measures. In 2009, the fiscal deficit was large, accounting for over 8 percent of the gross domestic
product (GDP). But Cambodia progressively reduced its fiscal deficit through increased revenue collection
and prudent spending. Since 2015, Cambodia was able to substantially reduce the fiscal deficit and
maintain it at less than 3 percent of the GDP (Figure 1). The deficit is often financed by foreign aid grants
or development partner financing of investment projects. In 2019, government savings rose to 20 percent
of GDP (or KHR 22.2 trillion) after several years of accumulation. The overall fiscal deficit is estimated to
have been limited at -0.7 percent of GDP in 2019.
Figure 1: Domestic revenue and expenditure in Cambodia (% of GDP), 2009-2019

30
20
Percent
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Direct taxes Indirect taxes (incl. trade taxes)
Other revenue Domestic revenue
Expenditure
Source: MEF.
Note: Other revenue includes non-tax revenue, capital revenue and provincial revenue.
Revenue collection increased because of improvements in tax administration and a broadening tax base.
Between 2009 and 2019, tax revenue collection of the central government increased from 9.7 percent of
GDP to 20 percent. Various tax administration reforms introduced by the General Department of Taxation
(GDT) and the General Department of Customs and Excises (GDCE) supported this increase. Since 2008,
the GDCE rolled out the Automated System for Custom Data (ASYCUDA) and enhanced anti-smuggling
measures. In 2014, the GDT introduced a shift toward a real regime system of taxation for business profits
(mainly of large, incorporated and/or commercial enterprises), improved taxpayer registration and
services, and improved tax auditing capacity leading to better compliance (World Bank, 2019). These
reforms were implemented in the context of the Revenue Mobilization Strategy for 2014-18. These
efforts, coupled with fast economic growth, enabled gains to be realized in most sources of revenues,
particularly from value-added tax, excise duties, and corporate tax. In 2019, tax revenues for Cambodia
were higher than most ASEAN countries (Figure 2).
4
Figure 2: Tax revenue (% of GDP) of Cambodia and ASEAN countries, 2019
Cambodia
Thailand
Philippines
Singapore
Malaysia
Indonesia
Myanmar
0 5 10 15 20
Source: WDI database.
Note: Data for Vietnam, Lao PDR and Brunei Darussalam were not available.
Cambodia’s improved fiscal space allowed the government to boost spending. Government expenditure
increased from 20.2 percent of GDP in 2011 to 24 percent in 2019, largely driven by spending on social
services and on defense and security (World Bank, 2023). However, Cambodia’s expenditure boost partly
reflected salary increases for civil servants. Between 2011 and 2019, the public sector wage bill as a share
of GDP almost doubled from 4.4 percent of GDP in 2011 to 7.1 percent of GDP in 2019 (World Bank, 2023)
and public sector minimum wage rose from around US$ 50 a month in 2012 to US$ 250 in 2018 (World
Bank, 2019). Social sector spending increased from 4.6 percent in 2011 to 6.8 percent in 2019 largely due
to increased education spending, which almost doubled 1.5 percent of GDP in 2011 to 2.9 percent of GDP
in 2019 (World Bank, 2023 and WDI). However, health spending only grew marginally in the years before
the pandemic. Electricity subsidies to eligible households and businesses amounted to US$ 33 million
(0.12 percent of GDP) in 2019.
Tax system in Cambodia

Revenue collection in Cambodia is highly centralized with a small number of taxes collected at the
municipal or provincial level. In total, central government revenue amounted to 23 percent of GDP in
2019, while provincial government revenue amounted to 2 percent (Table 1). Indirect taxes are the main
source of government revenues (13 percent of GDP), followed by direct taxes (5 percent of GDP). Table 1
outlines Cambodia’s government revenue structure.
5
Table 1: Cambodia Domestic Government Revenues, 2019
Amount Percent of Included
Percent
Source (billion Government in CEQ
of GDP
KHR) Revenue analysis
Domestic Revenues (A+B) 27,730 25 100
A. Central Government Revenue (I+II+III) 25,576 23 92
I. Tax Revenue 22,053 20 80
Direct taxes of which 5,045 5 18
Profit tax 4,197 4 15 n.a.
Payroll tax 848 1 3 Yes
Tax on interest, royalties, and dividends -- -- -- No
Land and property -- -- -- Yes
Indirect taxes of which 14,095 13 51
VAT (domestic and on imports) 7,410 7 27 Yes
Excise duties (domestic and on imports) 6,478 6 23 Yes
Others 207 0 1 Yes
Taxes on international trade 2,913 3 11 n.a.
II. Non-tax revenue 3,342 3 12 n.a.
III. Capital revenue 181 0 1 n.a.
B. Provincial revenue 2,153 2 8 n.a.
Source: MEF.
Note: Social Security Contributions revenue (96.4 billion KHR as of 2018) are recorded under the revenue of the
National Social Security Fund. Hence there is no record under Budgetary Central Government Level.
Indirect taxes
Value added tax (VAT) is the largest component of indirect taxes. It amounts to 27 percent of domestic
government revenues. VAT is applied to taxable goods and services at a 10% flat rate. Exempted from VAT
are public postal services, hospital, clinic, medical and dental services, the sale of medical and dental
goods, the services of transporting passengers using the state-owned public transportation system,
educational services, water and electricity, raw agricultural products and liquid and solid waste disposal
services.
Excise tax is the second largest component of indirect taxes amounting to 17 percent of domestic
government revenues. Excises are imposed on the importation or domestic production and supply of
certain goods and services with various tax rates including cigarettes, cigars, beer, petroleum products,
cars, motorcycle, telephone services, transportation services, hotels, and entertainment services.
Direct taxes
As is the case in most countries, the fiscal system in Cambodia has various types of direct taxes levied on
income or wealth. The system of direct taxes and contributions covers taxes on income, profits, capital
gains and property (further details are provided in the Technical Appendix). Direct taxes in Cambodia
represent 18 percent of domestic government revenues in 2019, of which corporate income tax and salary
tax account for the largest components.
6
Salary tax is the primary source of direct taxes included in the analysis. 9 All individuals, who are either
residents or non-residents of Cambodia and currently employed, are liable for salary tax. The salary of
resident employees is taxed at progressive rates of 0 to 20 percent, while that of non-resident employees
is subject to a 20 percent flat rate. In 2019, the tax system levied salary tax at 5%, 10%, 15% and 20%
conditional on the level of earnings. Taxes are levied in the same way on each individual salary, calculated
and withheld by employers. They are thus not integrated into a systematic form of a Personal Income Tax.
In addition, residents receive a monthly tax deduction of KHR 150,000 for each child (less than 14 years
old or up to 25 if he/she is in school full time at a recognized educational institution), and KHR 150,000
for a dependent spouse who is not working.
Direct taxes also encompass corporate income tax, which are the largest component of direct taxes, but
are not included in the present analysis. Corporate income tax is excluded because the allocation of the
tax burden to individual households is generally not possible and is further complicated by the fact that a
substantial proportion of businesses in Cambodia operate outside the formal sector.
Direct taxes also include: (i) property tax of 0.10 percent levied on the market value of immovable
property (land, houses, buildings, and infrastructure) valued at more than KHR 100 million; (ii) rental
property income tax of 10 percent on gross rental income; (iii) withholding tax of 15 percent imposed on
income from interest, dividends, and royalties; (iv) registration tax of 4 percent imposed on the buyer for
transfer of ownership of property or transportation vehicles; (v) tax on means of transportation; (vi) other
direct taxes which cannot be modelled in the analysis due to data constraints.
Social security contributions
Private sector employers in Cambodia with 8 or more workers are required to contribute to the National
Social Security Fund (NSSF). The NSSF, established in 2008, was designed to provide both public and
private sector employees with: (i) pensions; (ii) injury insurance, and (iii) health insurance. Each month,
an employer with 8 or more staff pays 0.8 percent of the average monthly wage of workers towards
employment injury insurance, capped at KHR 1,200,000. The employer also contributes 2.6 percent of the
monthly wage for health insurance (again capped at KHR 1,200,000). The employee receives full medical
assistance and 70 percent of the salary if hospitalized for more than 8 days.
Non-tax revenues
In addition to tax revenues, the government collects non-tax revenues amounting to 12 percent of total
revenues. Non-tax revenues include income derived from state properties; state owned enterprises;
autonomous state entities; revenue obtained from the provision of public services; fines and penalties
levied against citizens.
Government spending
While education spending increased over the last few years, social sector spending in Cambodia remains
low by international comparison. Cambodia is spending less on education and health as a share of GDP
9
Tax on salary was introduced in 1995. There is no personal income tax, per se, in Cambodia.
7
than other ASEAN countries. Education spending accounted for nearly 3 percent of GDP in 2019, of which
primary education absorbed more than half of overall spending. Cambodia’s constitution mandates public
schools provide 9 years of free basic education. Health spending was only 1.7 percent of GDP in 2019, only
modestly increasing since 2009 from 1.2 percent. Best performers in ASEAN spend nearly twice the
amount as a share of GDP. For example, between 2009 and 2019 Malaysia and Vietnam spent, on average,
5 percent of GDP on education. Thailand and Vietnam spent, on average, more than 2 percent of GDP on
health. Cambodia, together with Myanmar and Lao PDR, lag among ASEAN countries respectively.
Cambodia lags on some human capital indicators due to weaker education attainment, skill utilization,
and child nutrition outcomes. 10 Cambodia needs to catchup and align its education and health outcomes
with best performers within ASEAN and the world. As the CEQ analysis demonstrates, increased education
and health spending to match top performing ASEAN countries could help Cambodia redistribute wealth
and support low-income households.
Table 2: Central Government Spending, 2019

Type Amount Percent Included in
(billion KHR) of GDP CEQ
Analysis?
Central Government Expenditure 27,317 24.8

Social Benefits 2,310 2.1
Social security 898 0.8 Partial
Social assistance to citizens 1,219 1.1 Partial
Social assistance to social and cultural entities 138 0.1 No
Other social benefits 56 0.1 No
Health (MoH spending) 1,924 1.7 Yes
Education (MoEYS spending) 3,679 3.3 Yes
Other Spending 19,404 17.6 No
Source: MEF, MoH, MoEYS.
Social protection spending consisting of social assistance and social security amounted to about KHR 2,255
billion, or about 2 percent of GDP, in 2019. About half of Cambodia’s social protection spending was
devoted to social security, primarily for former civil servants as pensions. The other half, almost 1 percent,
was devoted to social assistance (Figure 3). Social assistance spending in 2019, in particular on cash
transfers, was very low in Cambodia albeit better than in some developing countries in East Asia and the
Pacific.11 Cash transfer spending was minimal in 2019 despite the full national roll out of the Conditional
Cash Transfer for pregnant women and children below 2 years old. However, during the COVID-19
pandemic Cambodia’s social assistance spending increased significantly.
10
World Bank (2020).
11
The National Social Protection Policy Framework (2016–2025) has two main pillars: social assistance and social
security. The social assistance pillar includes emergency response, human capital development, vocational training,
welfare for vulnerable people. The social security pillar includes pension, health insurance, employment injury
insurance, unemployment insurance, disability insurance.
8
Figure 3: Social assistance spending Figure 4: Cash transfer spending
(EAP non-HIC) (EAP non-HIC)
6 2
5
Percent of GDP
Percent of GDP
4
3 1
2
1
0 0
Papua New…
Papua New…
Vietnam
Timor-Leste
Indonesia
Indonesia
Thailand
Malaysia
Fiji
Philippines
Malaysia
Philippines
Vietnam
Timor-Leste
Fiji
Thailand
Samoa
Lao PDR
Samoa
Lao PDR
Kiribati
China
China
Kiribati
Myanmar
Myanmar
Mongolia
Mongolia
Cambodia
Cambodia
Source: CEQ and World Bank databases and World Bank calculations. Sosa and Wai-Poi (forthcoming).
Note: Total SA spending excluding health fee waivers. Cash transfers include CCT and UCT.
HIC = High-income country, CCT = conditional cash transfers, UCT = Universal cash transfers.
3. Methodology, Data, and Assumptions
CEQ framework
This paper applies an internationally recognized methodology developed by the Commitment to Equity
(CEQ) Institute to assess how taxes and government spending affect poverty and inequality in Cambodia.
The CEQ framework has in recent years emerged as the gold standard to answer questions concerning the
implications of fiscal interventions across the income distribution.12 The approach has been applied in
over 60 countries, allowing comparisons of Cambodia’s performance with peer lower middle-income
countries.
The CEQ approach combines detailed household survey data with tax and benefit regulations to estimate
what each household paid in taxes and received in benefits. The CEQ approach then describes the
distributional effect of the fiscal system sequentially through four income measures. The baseline concept
is market income, which is the income that an individual (or a household) earns before any taxes are
subtracted and any transfers are included. Three “post-fiscal” income measures—disposable income,
consumable income, and final income—are sequentially built by subtracting and adding different forms of
fiscal interventions to the pre-fiscal income. Comparisons of the four income aggregates provide
information on how fiscal interventions affect the income distribution sequentially from the pre-fiscal
income to the final income. Poverty and inequality measures derived from the pre-fiscal and post-fiscal
income measures are then compared. A comprehensive incidence analysis is therefore built by
12
See http://commitmentoequity.org/.
9
sequentially quantifying the poverty and inequality impact of direct taxes and transfers, indirect taxes and
subsidies, and social spending on health and education.
Figure 5: CEQ basic income concepts
Source: Excerpted from Lustig (2018).

Note: The income concepts are under the scenario of Pensions as Deferred Income.
Total consumption obtained from the household survey is treated as a proxy for disposable income and
serves as the starting point for deriving the other income measures. 13 This approach is applied in
developing countries given the difficulty of directly obtaining a precise measure of disposable income from
13
For poverty measurement purposes, a consumption aggregate was constructed by the National Working Group
on Poverty Measurement (NWGPM) under the leadership of the Ministry of Planning with technical assistance
from the World Bank. The aggregate includes food, nonfood, imputed housing rents, and the use-value of durable
goods. The sum of these items is normalized by household size and by a spatial price index computed for each
region (i.e., Phnom Penh, other urban and other rural).
10
the survey data. Second, market income, is computed as disposable income plus direct taxes and
contributions minus direct transfers. It includes direct personal income taxes, social security contributions
(health and injury), and direct- and near-cash transfers. 14 Market income, which is the primary income
concept for the CEQ, is used to rank households into income deciles or quintiles as it represents income
before state actions through taxes and transfers. Third, consumable income is computed as disposable
income plus indirect transfers/subsidies minus indirect taxes. Finally, final income is consumable income
plus imputed values of education and health care services. The monetarized value of education and health
care services is conditional on the composition of households, declared use of public services and
calculated values of these benefits in specific circumstances.
The methodology is based on an accounting approach. Taxes and transfers are added to and subtracted
from household per capita income to measure income before and after each fiscal intervention. The per
capita household income after taxes and transfers is given by:
𝑌𝑌ℎ = (𝐼𝐼ℎ − ∑𝑖𝑖 𝑇𝑇𝑖𝑖 𝑆𝑆𝑖𝑖ℎ + ∑𝑗𝑗 𝐵𝐵𝑗𝑗 𝑆𝑆𝑗𝑗ℎ )/H (1)
where 𝐼𝐼ℎ is income before taxes and transfers, 𝑇𝑇𝑖𝑖 are the taxes paid by the households for 𝑖𝑖 range of taxes
analyzed, 𝐵𝐵𝑗𝑗 are the transfers received by households for 𝑗𝑗 range of transfers analyzed. 𝑆𝑆𝑖𝑖ℎ and 𝑆𝑆𝑗𝑗ℎ are
the amounts of tax 𝑖𝑖 and transfer 𝑗𝑗 paid and received by households, respectively, and H is the number of
individuals in the household.
Data sources
The primary data providing individual and household-level information necessary to allocate the fiscal
policy elements is the 2019/20 Cambodia Socio-Economic Survey (CSES). 15 This survey is collected by the
National Institute of Statistics every two years. CSES 2019/20 includes modules covering education,
health, labor market activity, income sources, and household consumption expenditure. CSES also
provides a roster of individuals in each household that provides individual and demographic
characteristics. The 2019/20 CSES uses the 2019 General Population Census of Cambodia as the sampling
frame and is representative at the national level; by Phnom Penh, other urban, and rural areas; and by
four geographic zones. The survey was administered to 10,075 households (44,549 individuals).
Administrative data for the survey year provides relevant information on the fiscal system. This paper
focuses solely on the 2019 fiscal year because it overlaps with the 2019/20 CSES and it is the last year
before the fiscal data is affected by the coronavirus disease 2019 pandemic. The Ministry of Economy and
Finance is the source for total revenues collected by the government from households (from different
taxes) and spending (on subsidies and social programs). Details of Government revenues and spending
are also needed for validating the precision of imputations of the fiscal elements to the household sector.
14
Cash and near-cash transfers are transfer income from the government to individuals and families, and include
Social Security, unemployment compensation, workers compensation, all means-tested cash transfers, and food
and housing benefits.
15
See National Institute of Statistics (2020).
11
These administrative data on taxes and transfers are complemented with information of the Cambodian
tax code and laws to understand the design of each fiscal intervention.
Additional information on public education and health care services was collected to allow for a more
precise assignment of in-kind education and heath transfers to households by the type of service received.
The Ministry of Education, Youth and Sport provides enrollment and spending for each level of public
education, allowing for an estimation of the spending per student by level of education. For health care,
the costing of various health care interventions from Flessa et al. (2018) and Jacobs et al. (2019) is used
to assign the monetarized value of health care per person by intervention. We apply this valuation,
adjusted by inflation, to health care interventions reported in the 2019/20 CSES data (see Technical
Appendix for more details).
Empirical Approach and Allocation Overview

There are broadly five steps involved in the empirical approach of a CEQ.
Step 1: Identify the fiscal interventions that can plausibly be studied using the household survey.
Step 2: Allocate the gains and losses from fiscal interventions to individuals and households. In
the case of taxes on income, allocations are made to individuals and then aggregated at the
household level. In the case of taxes or subsidies on consumption, allocations are made to the
household. This process involves (a) identifying who pays taxes and social security contributions,
based on the source of income and imputed formality of employment; (b) estimating how much
each household paid in taxes and received in transfers using laws, codes, program rules,
plausible assumptions, and household survey responses. Step 2 is the most complex and labor-
intensive component of the exercise.
Step 3: Test the quality of the model by validating the simulated fiscal policy elements against
administrative statistics.
Step 4: Build the income aggregates according to CEQ concepts.
Step 5: Construct poverty and inequality measures for each income concept.
In the analysis fiscal policy elements are allocated to individuals or households based on simulation and
imputation. Household data usually do not focus specifically on the value of individual taxes paid by
households and often collect aggregate information on direct transfers. In the CSES 2019/20 case, the
only exception is property tax which is recorded in the data. This means that most of the modeled fiscal
interventions need to be simulated using other data provided in the survey. The most important
simulation assumptions which have been applied are the following (the Technical Appendix provides a
detailed description of the assumptions applied in the analysis):
A) Income taxes, health, and social security insurance values have been simulated using the detailed
regulations based on the information on employment earnings and self-employment income; this
information is combined with an imputation of employment status to ensure that taxes are only
levied on formal employment. The tax on property rental is simulated based on the regulations
12
and reported income in the CSES data. The tax on immovable property and the vehicle tax are
modeled based on the estimated value of the property which is reported in the data, and the
type(s) of car(s) which are reported by the household. There is not enough information in the data
to assign the exact value of the vehicle tax, so the tax is imputed based on the characteristics that
are available in the CSES.
B) Property taxes in Cambodia are levied on means of transportation and on fixed assets. These are
assigned to households based on a joint declared sum of property taxes reported in the CSES data,
which is disaggregated into means of transportation tax and property tax using information on
vehicle ownership and vehicle characteristics. The residual amount is assigned as property tax.
C) The CSES data does not provide much detail concerning welfare transfers and itemizes only
receipts of scholarships. Therefore, direct transfers are only divided into scholarships and (other)
welfare transfers. We adjust transfer receipt values among households eligible to the Conditional
Cash Transfer (CCT) to reflect the applicable values of the CCT. Pensions constitute part of overall
welfare payments in the CSES 2019/20 data and cannot be separately identified. In Cambodia
pensions however are a very small proportion of household incomes – in 2017 for example (when
they could be separately identified) they amounted to 3% of total household incomes.
D) Indirect taxes and subsidies are calculated based on the general rules applied to consumption
taxation and the information provided in the CSES on household expenditures; this applies both
to the VAT and excise duties, as well as to the imputation of electricity subsidies calculated based
on location and reported cost and usage of electricity. The purchase of food products in rural
areas is treated as informal and thus not subject to VAT in the model.
E) In-kind transfers are allocated to households based on either age eligibility (education) or
declared usage of these services (health). In the case of education values are imputed using
information on public school attendance children’s age eligibility. In the case of health care, we
use the information on declared use of health care services in the data and impute their value
using estimates of intervention costs from Flessa et al. (2018) and Jacobs et al. (2019).
Macro-validation of the simulated fiscal policy elements

The data used for this study allow us to analyze only a proportion of fiscal interventions since much of
government spending and revenues cannot be directly assigned to specific households in the data. The
CEQ methodology in Cambodia covers the dimensions of fiscal policy which account for about 19.3
percent of total government revenues and 23.2 percent of total government spending.
To test the quality of the survey data and modelled fiscal elements, total imputed/simulated taxes and
benefits are compared against administrative statistics. The exercise aims to see how precisely the total
taxes (transfers) collected from (paid to) households in the survey matches the total tax collections
(spending) reflected in budget documents. Table 3 shows the results of the validation exercise.
13
Consistent with household survey data in many developing countries, our calculations confirm the lack of
representativeness of households in the upper tail of the income distribution. This is reflected in the
degree to which we can capture the tax base and thus evaluate the allocation of the tax burden across
the income distribution and the true implications of the tax and benefit system for redistribution. For
example, there is no one in the data with earnings high enough to be paying salary tax in the highest tax
bracket. Similarly, underrepresentation of the highest income households suggests some caution is
needed in the interpretation of inequality measures under different income definitions and changes in
inequality level over time.
Several elements of the tax system are simulated relatively well when compared to administrative
statistics. For example, the exercise captures about 96 percent of employment injury insurance and 99.2
percent of property tax.
Our method of allocating education benefits allows us to assign 99.2 percent of education expenditure
and 93.1 percent of health care costs. In the case of education, this is because transfers per student are
given their value based on the official statistics. For health transfers, this validates the adopted approach
to imputation of the value of health care benefits and indicates that the source of health costs used for
the valuation of various procedures is very accurate. It is also worth noting that in this case
underrepresentation of top income households may be less damaging for the precision of our simulations
since many of the highest income households are likely to opt for the use of private health care.
Table 3: Simulation results and validation

Amount simulated, Macro data, Proportion of
(billion KHR) (billion KHR) simulated to macro
(%)
Direct transfers 111.6 101.7 109.8
Salary tax 196.1 847.8 23.1
SSC: Employment Injury Insurance 93.4 96.4* 96.9
Health Insurance 303.6 154.2* 196.9
Taxes on interest, royalties, and dividends n.a.** n.a. ---
Property tax 148.3 149.5 99.2
Means of transportation tax 91.7 259.6 35.3
Tax on income from rental of movable and 77.0 268.6 28.7
immovable property
Registration tax n.a.*** n.a. ---
VAT tax 3,707.7 6,259.9 59.2
Specific tax, excise 644.5 1,130.5 57.0
Public lighting tax 43.8 182.5 24.0
Accommodation tax 4.4 20.2 21.8
Indirect subsidies (electricity subsidy) 90.7 134.9 67.2
Education transfers 2,950.9 2,974.8 99.2
Health transfers 1,400.5 1,498.8 93.4
Disposable Income 107,335.6 81,589.7 131.6
Source: Amounts of taxes paid are taken from 2019 Table of Government Financial Operations (TOFE); for SSC values come from NSSF, Report
on Ten-Year Achievements 2008-2017 and Action Plans 2018; Education transfers are taken as MoEYS budget, health transfers are taken as
MoH expenditures less donor funding. Notes: Values in yearly amounts. *External statistics of SSC: Employment Injury Insurance and Health
insurance not available for the most recent years, value provided for 2017 and uprated to account for inflation to 2019. **There are no
observations in the CSES data of income from interest, royalties, or dividends. ***Only one case of property sale in the CSES data.
14
The simulations of other fiscal elements are less precise. This applies to such instruments as the salary tax
(23.1 percent of the administrative aggregate) or means of transportation tax (35.3 percent). These ratios
reflect lack of representativeness of the data at the higher end of income distribution and lack of detailed
information in the data with the parameters of the fiscal system. The underrepresentation of richest
households has consequences both on the direct side of taxes, given the high tax base and the
progressivity of both the salary tax and means of transportation taxes, and the indirect side since
expenditure of the top income households might be conducted more specifically in the formal sector and
correspond in value with their high incomes.
The limited precision in modelling SSC/HI and salary taxes stems from the high degree of progressivity of
tax contributions and lack of highest earners in the data. For example, there are only 13 people in the data
who would be modeled to pay income tax at the highest rate of tax. While detailed information on the
number earners who fall in the top income tax bracket is unavailable for detailed sensitivity analysis, it is
clear that information on top incomes is not as precise in household data and the corresponding
simulation of taxes simply cannot match the information in administrative statistics.
The observed difference between survey estimations and macro data is not unusual for taxes on several
of the modeled consumption items.16 The simulated values of indirect taxes less closely match
administrative records. Estimations from the survey capture 59.2 percent of the total government
revenue from VAT. 17 The undersimulation of some indirect taxes like the public lighting tax or alcohol tax
in all sections of the income distribution might reflect underreporting of specific categories of goods such
as tobacco and alcohol. Further, the undersimulation for expenditures also reflects the fact that not all
final consumption is conducted by private households. VAT is also paid by public institutions and by the
corporate sector for which the final sales are exempt from VAT. Additionally, some taxable incomes and
a high proportion of some consumption items, like accommodation, are received and paid by visiting
foreigners. Indirect subsidies (in this case the electricity subsidy) are simulated with an accuracy of 67.2
percent when compared to official statistics. However, the scale of the electricity subsidy is very small
when compared to indirect taxes; according to government statistics, 134.9 billion KHR in 2019 was spent
on the electricity subsidy in 2019, as opposed to 6,259.9 billion KHR in revenues from VAT alone.
16
See the appendixes for more details.
17
The total value of household consumption in the CSES 2019/20 is KHR 107,335.6 billion. According to the World
Bank, GDP in 2019 was US$ 27.09 billion at official exchange rate and household consumption was 74% of GDP.
This means: 27.09*4070*0.74 = KHR 81,590 billion; so less than observed in the data. So, with more consumption
we catch less VAT. Usually this can be explained by government, NGO spending, intermediate VAT in zero-rated
final goods. However, all of those are low in Cambodia. The only reasonable explanation seems to be that we miss
consumption of very rich households which is likely to be subject to VAT. This would suggest though that
household consumption in the national statistics would also be too low. Note that we assume that VAT is not paid
on food in rural areas – this seems reasonable, but perhaps it is too restrictive.
15
4. The Distributional Impact of Cambodia’s Fiscal System
Size effect of fiscal interventions

Comparisons of average income per capita at each income concept reveals the size effect of fiscal
interventions. The difference between market income and disposable income reflects the net effect of
direct taxes and direct transfers. The difference between disposable income and consumable income
reflects the net effect of indirect taxes and subsidies. The difference between consumable income and
final income reflects the net effect of in-kind transfers. The difference between market income and final
income reveals the overall change in average per capita income from the operation of the full fiscal
system.
Among three main categories of fiscal interventions, indirect and in-kind fiscal interventions have the
largest size effect on incomes in Cambodia. There is a sizable decline in average per capita income due to
indirect fiscal interventions as revealed in the transition from disposable income to consumable income.
The reduction in income indicates that on average indirect taxes paid exceed subsidies received. There is
a sizable increase in average per capita income due to the receipt of public education and health services
as revealed in the transition from consumable income to final income. Direct taxes and transfers have a
small size effect on incomes, reflecting the small size of the formal sector in Cambodia and limited social
protection spending as is shown later. We ought to bear in mind though that a high proportion of salary
taxes, and other direct taxes, on the highest earners cannot be simulated on the CSES data due to
underrepresentation of high-income households, as is common in household survey data. This implies
that both the total and the average values of incomes, and the differences between them would have
been different if we could account for the top income households correctly. Similarly, average implications
of different forms of fiscal interventions would look differently if richest households were fully
represented in the data.
Figure 6: Average monthly per capita income Figure 7: Net effect of the fiscal system and its
(KHR) by income concept elements on average monthly per capita income (%)
Market income Full system -0.6
Direct
Disposable income -0.6
interventions
Consumable income Indirect

interventions -3.5
Final income In-kind

3.7
interventions
400,000 500,000 600,000 700,000
-4.0 -2.0 0.0 2.0 4.0 6.0
Source: Authors’ calculations based on CSES Source: Authors’ calculations based on CSES
2019/20 and fiscal data. 2019/20 and fiscal data.
16
Overall Impact of Taxes and Spending on Poverty and Inequality
In Cambodia, the overall fiscal system reduces inequality. Bearing in mind the caveat that top income
households are often underrepresented in household surveys—a common feature of most surveys,
especially in developing countries—the fiscal system in Cambodia reduces inequality by 1 percentage
point. Inequality, as measured by the Gini coefficient, falls between market income and final income
(Figure 8). Before any fiscal interventions, the market income Gini index is 32.4 percent. Once direct taxes
and direct transfers are considered, the Gini index reduces slightly to 32.2 percent at disposable income.
Indirect taxes and subsidies have limited effect, and their consideration leaves the Gini index of
consumable income remain at 32.2 percent. “In-kind” transfers from health and education, on the other
hand, have the largest effect on inequality with final income Gini at 31.4 percent. This reflects the fact
that in-kind transfers represent a significant share of pre-fiscal income and proportionally benefit lower-
income households more relative to those from the upper end of the income distribution.
Figure 8: Gini index before and after fiscal interventions in

Cambodia
34
33 32.4
Gini index (%)
32.2 32.2
32 31.4
31
30
Market income Disposable Consumable Final income
income income
Source: Authors’ calculations based on CSES 2019/20 and fiscal data.
While Cambodia does reduce inequality through taxes and transfers, the degree of redistribution is small
in international comparison. Figure 9 demonstrates that the redistributive effect of fiscal policy (including
in-kind transfers) is low in Cambodia. Some lower-middle-income countries achieve inequality reduction
of up to 9 percentage points from the pre-fiscal level. When in-kind transfers are excluded, the
redistributive effect in Cambodia is even lower. This is because of the very low impact of direct transfers
on inequality.
17
Figure 9: Change in Gini after fiscal policy (including in-kind transfers)
0
-5
LIC
Point Change
-10
-15
HIC UMIC LMIC
-20
-25
Iran
Ecuador
Colombia
Colombia
Kenya
Chile
Namibia
Ethiopia
Uruguay
Brazil
Panama
Romania
Russia
El Salvador
Comoros
Belarus
Armenia
Peru
Peru
Indonesia
Tanzania
Nicaragua
Egypt
Ghana
South Africa
Poland
Croatia
Mexico
Mexico
Mexico
Honduras
Cambodia
Uganda
Argentina
Costa Rica
Venezuela
Albania
Dominican Republic
Guatemala
Ukraine
Tunisia
Bolivia
Jordan
Sri Lanka
Burkina Faso
Paraguay
High income Upper middle income Lower middle income Low
income
Source: CEQ and World Bank databases and World Bank calculations (see World Bank, 2022b).
Note: HIC = high-income country, UMIC = upper middle-income country, LMIC = lower middle-income country,
LIC = low-income country.
At the same time, poorer households pay more in tax than they receive in cash transfers; short-term
poverty is slightly higher due to indirect taxation. Overall, the modelled fiscal system increases short-term
poverty by 2.1 percentage points, as shown by the transition from market income to consumable income
(Figure 10). The net transfer achieved through direct transfers and direct taxes on income are too small
to change average household incomes, and thus poverty. However, the net transfer resulting after
subsidies and indirect taxes on consumption is negative and large, thereby increasing poverty measured
today. In other words, all households face higher prices on goods from indirect taxes. For poor and near-
poor households, the higher price reduces purchasing power, potentially reducing net expenditures below
the poverty line. It is important to note that poorer households are only out-of-pocket in the short-term;
this analysis does not include the economic benefits of health and education services which households
will enjoy in the longer-term and which will help reduce poverty.
Figure 10: Poverty headcount before and after fiscal interventions

25
Poverty headcount (%)
19.8
20
17.7 17.8
15
10
Market income Disposable income Consumable income

Note: Per CEQ technical recommendations, in-kind health and education
transfers are not included when estimating the impact on poverty.
18
Cambodia is not alone in having fiscal policies that leave the poor out-of-pocket in the short-term. Fiscal
policy (excluding in-kind transfers) increases the short-term poverty headcount ratio in most developing
countries. Most fiscal systems in these countries rely heavily on indirect taxes. For instance, Tanzania
generates 60 percent of its revenues from indirect taxes (Younger et al. 2016). Cambodia’s fiscal system
is similarly reliant on indirect taxes, with revenues collected through consumption taxes (value-added tax
and excise duties) amounting to twice the revenues collected through income taxes. Although excise
duties cover socially costly goods such as alcohol and tobacco, these taxes also cover necessary goods,
such as bottled water and communication services (telephone and internet). Most necessities such as
meat, seafood, grains, and fruit are exempt from VAT. However, nearly every person is affected by the
Cambodian indirect tax system because at least one of the items she consumes regularly has an implicit
or explicit indirect tax. Net purchasing power for households along the income distribution therefore
decreases after receiving transfers (direct and subsidies) and paying taxes (direct and indirect). Although
many lower middle-income countries have fiscal systems that increase poverty, others perform better
(Figure 11).
Figure 11: Fiscal policy’s impact on poverty headcount ratio across countries
10
Market to Disposable Market to Consumable
Percentage point change
5
0
-5
-10
-15
Panama
Mexico
Armenia
Sri Lanka
Mexico
Mexico
Jordan
Indonesia
Costa Rica
Venezuela, RB
Ethiopia
Poland
Paraguay
Russian Federation
Russian Federation
Colombia
Peru
Colombia
Guatemala
Burkina Faso
Ecuador
Belarus
Peru
South Africa
Argentina
El Salvador
Nicaragua
Chile
Brazil
Iran, Islamic Rep.
Albania
Honduras
Ghana
Tanzania
Tunisia
Cambodia
Uganda
Uruguay
Bolivia
Dominican Republic
High income Upper middle income Lower middle income Low

income
Source: CEQ and World Bank databases and World Bank calculations (see World Bank, 2022b).
Note: Pensions as deferred income treatment. Relevant international poverty line used for income classes:
US$1.90 for LIC, US$3.20 for LMIC, US$5.50 for UMIC and HIC.
Fiscal policy has larger repercussions on rural than urban poverty in Cambodia. Areas with higher levels
of pre-fiscal poverty are disproportionately impacted. In other words, the net benefits of the fiscal system
are less concentrated in rural and other urban areas where more individuals are impoverished. This is
largely due to the impact of indirect taxes. The modelling indicates that the current (pre-COVID) fiscal
system increases short-term poverty in rural areas by 2.5 points (Figure 12), higher than the 1.8 points in
non-Phnom Penh urban areas, primarily driven by indirect taxation. The larger tax result reflects the
greater rate of near-poor in rural areas before fiscal policy, meaning they are more likely to fall under the
poverty line when indirect taxes are paid. Notably, three features of rural life are accounted for the results:
(i) home production of food and other staples is not subject to indirect taxation; (ii) current preferential
indirect tax rates and exemptions are modelled; and (iii) indirect taxes on food expenditures are modeled
19
in urban areas but not rural ones, reflecting the likely informal nature of food purchases in rural areas. For
these three reasons, the greater rural poverty increase is driven by the underlying welfare distribution
and not modeling characteristics.
Figure 12: Fiscal policy’s impact on poverty headcount ratio by area of residence
3.0
Percentage point change 2.5
2.0
1.5
1.0
0.5
0.0
Full system Direct Indirect
interventions interventions
Cambodia Phnom Penh Other Urban Rural

Note: Pre-fiscal poverty headcount; Cambodia=17.7%, Phnom Penh=4.1%, Other urban
= 12.4%, Rural = 22.6%.
Table 4: Fiscal policy’s impact on inequality and poverty by area of residence

Market income Disposable Consumable Final
Income income income
Gini coefficient (%)
Cambodia 32.4 32.2 32.2 31.4
Phnom Penh 34.8 34.5 34.6 34.0
Other Urban 30.9 30.8 30.9 30.2
Rural 28.0 28.0 28.0 27.5
Poverty headcount ratio (%)
Cambodia 17.7 17.8 19.8 n.a.
Phnom Penh 4.1 4.2 5.0 n.a.
Other Urban 12.4 12.6 14.3 n.a.
Rural 22.6 22.8 25.1 n.a.
Fiscal Impoverishment and Fiscal Gains to the Poor

Comparisons of poverty before and after taxes and transfers are applied only broadly indicates the gains
or losses the fiscal system creates. But this can fail to capture an important aspect: that some poor are
made poorer (or non-poor are made poor) by the tax and transfer system. Fiscal Impoverishment (FI)
traces the number of people who are impoverished following the execution of the fiscal policy.
20
Almost 20 percent of Cambodians experience fiscal impoverishment. This means that: 1) some individuals
whose pre-fiscal incomes were below the poverty line were net contributors to the fiscal system such that
this reduced their net cash position, and 2) some individuals whose pre-fiscal incomes were above the
poverty line were net contributors to the fiscal system such that their post-fiscal incomes (consumable
income) was below the poverty line. The average reduction in income as a proportion of market income
among Cambodians fiscally impoverished was 3.7 percent.
Conversely, some of the poor gained through the fiscal system. Fiscal gains to the poor (FGP) traces pre-
fiscal poor households to determine how many experienced an income increase following fiscal policy
execution. Fiscal policy made only about 2 percent of pre-fiscal poor better off; that is, net beneficiaries
of the Cambodian fiscal system. Among pre-fiscal poor beneficiaries, the average increase in market
income was 10.6%.
Table 5: Fiscal impoverishment and fiscal gains to the poor

Market income Change in poverty Fiscally Fiscal Fiscally better-
poverty headcount impoverished (% impoverished (% off (% of market
headcount (percentage points) of population) of consumable income poor)
(%) income poor)
17.7 2.1 19.5 98.4 1.9
Contribution of Individual Interventions to Poverty and Inequality Reduction

In addition to overall effects of fiscal policy, policy making must assess the contribution of each fiscal
intervention to poverty and inequality. We can analyze an intervention in terms of its progressivity and
marginal contribution to poverty and inequality. To do this, we use the Kakwani index (Kakwani 1977) to
analyze whether a tax or transfer is progressive. 18 A Kakwani index for taxes will be positive (negative) if
a tax is globally progressive (regressive), and a Kakwani index is positive if a transfer is progressive in
relative terms. A tax is considered progressive if the burden proportionally increases with income. For
each tax, the Kakwani index is defined as the difference between the concentration coefficient of the tax
and the Gini coefficient of market income. Similarly, a transfer is considered progressive if the entitlement
proportionally decreases with income. In the case of transfers, the Kakwani index is the difference
between the Gini coefficient of market income and the concentration coefficient of the transfer.
To analyze whether a tax or transfer is equalizing, we use the marginal contribution to income inequality
measured by the Gini coefficient. The marginal contribution measures the additional change in inequality
due to a tax or transfer. The marginal contribution is the difference between the Gini without the fiscal
intervention and the Gini coefficient of all income components combined. An intervention is equalizing
when the marginal contribution is positive. When there is only a single intervention in the fiscal system,
the Kakwani index would have been sufficient to determine whether the intervention is unambiguously
equalizing. When there are multiple fiscal interventions, the relationship between inequality outcome and
18
Progressivity can also be assessed using Lorenz curves and concentration curves.
21
progressivity is complex. 19 Comparing the marginal contribution and the Kakwani will reveal whether a
tax or transfer is equalizing (unequalizing) despite being regressive (progressive).
Box 1: Kakwani Index of Progressivity
Two related indexes can be used to assess the progressivity of an intervention (tax or benefit) to compare
the effectiveness of different interventions and to measure their redistributive effects: the Kakwani index
and the Reynolds-Smolensky (RS) index. Here we define the Kakwani index.
Let’s define the following terms:
xi is the income of household i.
T(xi) is the tax liability of household i.
X = Σxi is the total pre-tax income.
T = ΣT(xi) is the total tax collected.
𝑇𝑇
𝑔𝑔 = is the total tax ratio
𝑥𝑥
The Kakwani Progressivity Index for a tax T is KT = CT – GX, where CT and GX are, respectively, the con-
centration coefficient of the tax and the Gini coefficient of pre-tax income.
If KT > 0, then the distribution of the tax burden is more unequal than that of pre-tax income, meaning that
low-income households’ share of the tax burden is lower than their share in original income, so the tax is
progressive. If KT = 0, the tax is neutral and if KT < 0, the tax is regressive.
Taxes and Transfers and their Effect on Inequality
Direct taxes are the most progressive and most equalizing type of tax in Cambodia. Taxes on income and
property are both progressive and equalizing; the burden of taxation increases with income and
contributes to Gini coefficient reduction. Social security on the other hand and health insurance
contributions are regressive and unequalizing. Lower-income households face a proportionately higher
burden of social security due to the low maximum threshold (KHR 1,200,000). Indirect taxes are neutral
and less equalizing.
19
See Enami, Lustig, and Aranda (2017) and Lambert (2001).
22
Figure 13: Progressivity and redistributive effect of taxes
Marginal contribution Kakwani coefficient
Marginal contribution to equality

0.2 0.8
0.6
(Change in Gini Points)

0.1 0.4
Kakwani
0.2
0.0 0.0
-0.2
-0.1 -0.4

Note: SSC=Social Security Contributions, HI=Health Insurance.
All social transfers are progressive in Cambodia, except electricity subsidy and tertiary education
spending. Direct transfers are the most progressive but contribute little to reducing inequality due to their
small amount and poor targeting as discussed below. Direct social transfers in Cambodia constitute a very
small proportion of total incomes, even among the poorest households. For example, among households
in the first decile of the market income distribution the average value of direct social transfers amounts
to 0.94 percent of disposable income. Moreover, the CSES data collects only aggregated information on
welfare transfers, thus making it impossible to distinguish between different programs. Education
spending reduces inequality the most. Except for tertiary education, all other education spending is both
progressive and inequality-reducing. Primary education has the most equalizing effect.
Figure 14: Progressivity and redistributive effect of transfers and subsidies

Marginal contribution Kakwani coefficient
Marginal contribution to equality
1.0 1.0
0.8 0.8
(Change in Gini Points)
0.6 0.6
Kakwani
0.4 0.4
0.2 0.2
0.0 0.0
-0.2 -0.2
23
Taxes and Transfers and their Effect on Poverty
The degree of poverty reduction from direct transfers is not sufficient to fully offset the poverty-increasing
effect of taxes. Taxes have the strongest impact on poverty, and indirect taxes lead to higher overall
increase in poverty than do direct taxes. VAT has the highest poverty-increasing effect, increasing poverty
by about 1.76 percentage points. On the direct tax side, social security contributions and health insurance
together have the highest poverty-increasing effect, increasing the poverty rate by respectively 0.13 and
0.33 percentage points. Despite direct transfers reducing poverty, the degree of poverty reduction is
limited given the modest generosity of support through this channel. Direct transfers (pre-COVID) reduce
poverty by only 0.06 percentage points.
Figure 15: Marginal contribution of taxes and transfers to poverty

reduction
Salary tax
SSC
HI
Property tax
MoT tax
Rental tax
Registration tax
All contributions
All direct taxes
All direct taxes and contributions
VAT
Specific tax, excise
Accommodation tax
Public lighting tax
All indirect taxes
Total direct transfers
Electricity subsidy
-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5
Point change
Heterogeneity of Effects across Deciles

The burden of taxes and benefits varies across market income distribution deciles. In absolute terms, the
burden of direct taxes, in particular salary tax, concentrates at the upper end of the income distribution
(Figure 16A). In relative terms, the direct tax burden as a share of market income does not vary
considerably across the distribution except for the poorest and richest deciles (Figure 16B). However, cash
transfers are not sufficient to offset the burden of direct taxes across all deciles of the distribution except
the poorest. As such, the net cash position for most households is negative before considering indirect
taxes and subsidies.
After indirect tax and subsidies, the net cash position is negative for each market income decile. Cash
transfers do not offset the tax burden. While in absolute terms, households in the upper end of the income
24
distribution bear a greater burden of direct and indirect taxes, relative to market income, the proportional
tax burden does not vary considerably across the market income distribution.
Strong progressive, in-kind education and health transfers boost the final position of low-income
Cambodian households. The bottom 40 percent are net beneficiaries of the fiscal system, while richer
households are net contributors. The reduction in the Gini from 32.4 to 31.4 is due to in-kind transfers
(Figure 8).
Figure 16: Distribution of direct taxes and direct transfers

A. Direct tax burden/benefit by decile B. Direct tax burden/benefit by decile (% of
(KHR/month) market income)
5000 1.00
Proportion of income (%)

0.50
-5000
0.00
KHR / month
-10000
-0.50
-15000
-1.00
-20000
-25000 -1.50
-30000 -2.00
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Income decile Income decile
SSC: EIC - ER HI: ER Salary tax SSC: EIC - ER HI: ER Salary tax
Witholding tax Rental tax Registration tax Witholding tax Rental tax Registration tax
MoT tax Property tax Gov. stipends MoT tax Property tax Gov. stipends
Welfare (inc. pensions) Total Welfare (inc. pensions) Total
Figure 17: Distribution of direct and indirect taxes, direct transfers, subsidies and in-kind transfers
A. 0verall tax burden/benefit by decile B. 0verall tax burden/benefit (% of market
(KHR/month) income)
40000 15.00
20000
Proportion of income (%)
10.00
0
KHR / month
-20000 5.00
-40000 0.00
-60000
-5.00
-80000
-100000 -10.00
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Income decile Income decile
Education transfers Health transfers Total transfers - cash Education transfers Health transfers Total transfers - cash
Electricity subsidy Total direct taxes Total indirect taxes Electricity subsidy Total direct taxes Total indirect taxes
Total Total
Welfare transfers have limited poverty-reducing and redistributive effects, however, because they
provide low coverage, are small, and are poorly targeted. In 2019, about 10 percent of Cambodian
households possessed an IDPoor “equity” card and only 2 percent received conditional cash transfers
25
(CCT) available for pregnant women and children under age 2. The welfare transfers are small and could
be better targeted, as Figure 18 shows. Non-poor households also possess the IDPoor equity card to access
CCT benefits if they have small children, although at a lower incidence than poor households. The CCT for
pregnant women and children provided total benefits US$ 190 during pregnancy and a child’s first 2 years,
or approximately US$ 63 each year. This translates to just 6 percent of the national poverty line.
Figure 18: Percent of households with an Equity Card and CCT

recipients by decile
40%
30%
20%
10%
0%
1 2 3 4 5 6 7 8 9 10
Market income decile
Equity Cardholders (IDPoor) CCT
Because in-kind tertiary education benefits increase with income, they are regressive and not equalizing.
Enrollment in tertiary public education is not favorable for poorer segments of the population; about 60
percent of enrollment in tertiary education is among the top 20 percent income households in comparison
to 4 percent among the bottom 40 percent. Poor children clearly benefit from having basic education and
appear to access primary and secondary public education slightly more than non-poor children. However,
due to direct costs and related foregone incomes of remaining in school, these households do not benefit
much from tertiary education.
In-kind health benefits are progressive but not equalizing. While poorer households use public health
more than richer households, they capture relatively smaller shares of in-kind public health benefits.
26
Figure 19: Number of users of public education and health
B. Percent of households visiting a public health

A. Distribution of publicly enrolled students
facility by decile
70% 25%
60%
20%
50%
40% 15%
30% 10%
20%
5%
10%
0% 0%
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Market income decile Market income decile
Preschool Primary Secondary Tertiary
Figure 20: Distribution of in-kind transfers by decile

50B
40B
Riel (billions)
30B
20B
10B
0B
1 2 3 4 5 6 7 8 9 10
Market income decile
Education Health
Source: Authors’ calculations based on CSES 2019/20 and

fiscal data.
Most of the electricity subsidies accrue to non-poor households. Non-poor households are more likely to
be connected to the electricity grid and thus consume more electricity. The poor are more likely to live in
neighborhoods without access to an electricity network, and even where electricity is present, they often
cannot afford connection or monthly fees. Even if they can afford the connection fees, their electricity
consumption tends to be low. Overall, the implicit subsidy embedded in the tariff structure is regressive.
27
Figure 21: Percent of households consuming electricity by decile
100%
80%
60%
40%
20%
0%
1 2 3 4 5 6 7 8 9 10
Per capita market income decile
0–100 kWh 101–200 kWh 201+ kWh Not connected to grid/not consuming

Note: A kilowatt hour (kWh) is a measure of how much energy is used per hour.
Limitations and interpretations

The CEQ analysis provides useful insights about the effects of Cambodia’s tax and benefits system, but we
must acknowledge some limitations of the CEQ methodology and data, and their implications on
interpreting the CEQ results. First, the CEQ looks at only part of the fiscal system and does not fully capture
some taxes paid by households or benefits received from public goods. For instance, public infrastructure
could be progressive through its impacts on employment and economic activity. Second, while the data
are nationally representative, they are not designed to fully represent high-income households, a
phenomenon standard with household surveys in all countries. While missing top incomes does not affect
our ability to measure poverty, it has important consequences for inequality measures. If many richer
households are not captured in the survey, “true” inequality will be higher. This might attenuate
distributional implications and redistributive effects of various instruments since the higher burden of
taxes on non-represented rich households is not included. This is not a flaw in the survey data, which are
not designed to accurately measure the very top of the income distribution, but it does have implications
for fiscal incidence analysis. Another limitation is the challenge of assigning direct taxes to individuals
when the data does not explicitly distinguish between those in formal employment from those in informal
employment. As such, we needed to impute formal employment based on proxy characteristics from the
data to model the incidence of direct taxes, as these are not paid by individuals working in the informal
economy.
As suggested by the macro-validation of the CEQ exercise for Cambodia, discrepancies exist between
official statistics and modelled aggregate values of several elements of the tax and benefit system. 20 These
20
Several elements of the tax system are simulated relatively well when compared to administrative statistics. For
example, the exercise captures about 96 percent of employment injury insurance, 99.2 percent of property tax, 99.2
percent of education expenditure, and 93.1 percent of health care costs. Simulations of other fiscal elements are
less precise. This applies to instruments such as the salary tax (23.1 percent of the administrative aggregate) or
means of transportation tax (35.3 percent). The limited precision in modeling social security contributions, health
28
discrepancies could be lessened with more detailed micro-level household data and more detailed
administrative information on how particular elements of the system operate. While acknowledging the
limitations of the CEQ methodology with the existing data for Cambodia, the analysis does provide useful
insights into the operation of the tax and benefit system in Cambodia.
5. Potential Reforms and Policy Direction
To enhance the poverty-reducing effect of fiscal policy, the following Conditional Cash Transfer (CCT)
simulations provide examples of potential policy reforms which could address the challenges of the
current system. Each reform scenario has a specific cost and scale of poverty reduction. As presented
earlier, the IDPoor equity card presents a useful device for targeting CCT towards households at the lower
end of the income distribution. The card can be combined with other features of households, such as their
demographic characteristics, location, or access to facilities to further narrow down the groups of
recipients. In countries where such a program is not in place, targeting often relies only on the latter
information which often makes targeting less precise and means that significant proportions of benefits
are often allocated towards richer households.
Increasing the amount of targeted cash transfers to households with children under 3 has a sizable
poverty-reducing effect. Simulations demonstrate increasing cash transfers targeted to IDPoor
households with young children from about US$ 63 per year (US$ 190 over 1,000 days) to US$ 200 per
year would reduce the poverty rate by 0.11 percentage points. Similarly, a targeted cash transfer of US$
400 per year would reduce the poverty rate by 0.23 percentage points. Policies calibrated to the same
total costs but implemented in a universal fashion (i.e., without the use of the IDPoor equity card to
identify eligibility), thus allocating lower average values to the households which fulfill the demographic
requirements, have a much smaller poverty-reducing effect.
Table 6: Poverty reduction and cost of four CCT scenarios aimed at IDPoor households
CCT scenario Design Poverty Cost (millions
reduction (pp) US$/year)
CCT Version 1 200 US$ per year/child under the age of 3 in -0.113 16.5
households identified by the IDPoor equity card
CCT Version 2 20 US$ per year/child under the age of 3 -0.062 15.7
CCT Version 3 400 US$ per year/child under the age of 3 in -0.230 32.9
households identified by the IDPoor equity card
CCT Version 4 40 US$ per year/child under the age of 3 -0.113 31.4
insurance, and salary taxes potentially stems from the high degree of progressivity of tax contributions and lack of
highest earners in the data.
29
Figure 22: Absolute gains of four CCT scenarios aimed at households with young children
A. Absolute gain per HH by market income decile B. Absolute gains per HH by demographic
structure
3,000 1,500
2,500
2,000 1,000
KHR/month
KHR/month
1,500
500
1,000
500
0
0 No children No children, 1 child 2 children 3+ children
1 2 3 4 5 6 7 8 9 10 or elderly with elderly
CCT Version 1 CCT Version 2 CCT Version 1 CCT Version 2
CCT Version 3 CCT Version 4 CCT Version 3 CCT Version 4
Increasing the amount of targeted cash transfers to households regardless of whether they have young
children has an even greater poverty-reducing effect. Simulations demonstrate that allocating cash
transfers targeted to IDPoor households on a per-capita basis regardless of the age structure of the
households at the value of US$ 200 per year would reduce the poverty rate by 1.4 percentage points.
Table 7: Poverty reduction and cost of two CCT scenarios aimed at IDPoor households
CCT scenario Design Poverty reduction (pp) Cost (Millions US$/year)
CCT version 5 IDPoor households: 150 -0.996 236.8
US$ per person
CCT version 6 IDPoor households: 200 -1.418 315.7
US$ per person
30
Figure 23: Cost and poverty reduction of four CCT scenarios aimed at small children
A. Absolute gain per HH by market income decile B. Absolute gains per HH by demographic
structure
21,000 12,000
18,000
9,000
15,000
KHR/month
KHR/month
12,000
6,000
9,000
6,000 3,000
3,000
0
0 No children No children, 1 child 2 children 3+ children
1 2 3 4 5 6 7 8 9 10 or elderly with elderly
CCT Version 5 CCT Version 5
CCT Verison 6 CCT Version 6
6. Conclusion
This paper performs a fiscal incidence analysis for Cambodia using the CEQ approach. The present analysis
relies on the 2019/20 Cambodia Socio-Economic Survey (CSES) and 2019 fiscal data. The CEQ approach is
a tool that helps assess the redistributive effect of a fiscal system and its individual interventions, offering
invaluable insights for policy. Moreover, it offers a platform to simulate policy scenarios and assess their
distributional implications.
The 2019 fiscal system in Cambodia, per the CEQ model, reduces inequality yet lowers incomes of poor
households in the short-term. Note, these results predate the substantial increase in cash transfers to
poor and vulnerable households in response to the COVID-19 pandemic. The informal sector accounts for
a large share of the economy in Cambodia, hence taxes are largely collected indirectly. Poorer households
pay indirect taxes as part of the purchase price of goods and services, which reduces their purchasing
power, even with tax exemptions on necessities. In the absence of offsetting transfers, their net cash
position is negative on average. Short-term poverty can increase following execution of fiscal policy
because direct transfers are too small to compensate for the impact of indirect taxes on poor and
vulnerable households. Note, households also benefit from in-kind services from spending on health,
education, and infrastructure, but they do not receive these services in cash and therefore do not increase
their incomes today. However, it is possible for fiscal policy to reduce poverty in the long run through
investments in human capital and infrastructure. Other components of spending not captured in the CEQ
exercise, such as public infrastructure, can make the overall system more progressive through their
indirect effects on inclusive economic growth.
Cambodia is not alone among developing countries in seeing a short-term poverty increase due to fiscal
policy. Several peer lower middle-income countries also experience net poverty increases due to their
31
fiscal policies. This is not surprising due to their heavy reliance on indirect taxation. Nonetheless, some
low- and lower-middle-income countries apply fiscal policies more effectively, achieving both inequality
and short-term poverty reduction. The findings for Cambodia suggest some fiscal system reforms are
needed to improve its distributional effect, drawing on the international lessons for progressive fiscal
policy in World Bank (2022b). Without reform, poorer households will continue paying more into the fiscal
system than they receive from it in cash terms.
Cambodia must look to spend more and spend better to enhance the redistributive effect of the fiscal
system. Higher transfers to poorer households and better targeted transfers would help improve the
short-term poverty impact and cost-effectiveness of these transfers. Higher transfers will offset losses in
purchasing power from indirect taxation, while improved identification of poor and vulnerable households
ensures those most in need benefit. Some of these gains could be achieved by reallocating spending away
from regressive subsidies such as electricity. For example, electricity subsidies cost 0.1 to 0.15 percent of
GDP and do not benefit poorer households very much; if spent instead on targeted cash transfers, this
would double the pre-pandemic budget. Further, maintaining some of the increased pandemic spending
will bring Cambodia’s social assistance budget closer to regional and international levels while offsetting
much of the short-term increase in poverty from fiscal policy. As a rough calculation, the poverty-reducing
effects of Cambodia’s COVID-19 response, if sustained after the pandemic, would largely eliminate the
short-term impact of fiscal policy on poverty. 21 Even if social assistance spending was not maintained at
COVID-19 levels but sustained at half the level, the impact of fiscal policy on short-term poverty would
put Cambodia closer to the middle of the upper-middle-income country range (Figure 24).
Figure 24: Impact of fiscal policy on short-term poverty in LMICs

6 Pre-COVID impact
5
Half COVID
4 COVID response* response*
3
2
1
0
-1
-2
-3
-4
Cambodia could also spend more on health and education. Countries that see significant reductions in
inequality usually do so through health and education spending. Of all the fiscal interventions modeled
for Cambodia, spending on primary and secondary education contributed most to inequality reduction.
Allocations to primary and secondary education to improve access and quality of services would be pro-
21
As World Bank (2022a) documents, Cambodia increased its social assistance spending in response to the COVID-
19 crisis from 0.1 percent to 0.7 percent of GDP between 2019 and 2020. The report estimates that this mitigated
the poverty-increasing impact of the pandemic by 1.9 percentage points, which is applied to the 2019 CEQ results
of this paper to roughly update Cambodia’s fiscal policy impact on short-term poverty. This is a rough
approximation only.
32
poor. Improving spending, access, and quality of health care would also be pro-poor, helping to reduce
out-of-pocket expenditures for poorer households and improve their longer-term prospects for better
health and productivity.
33
References
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into Essential Economic Data from Three Provinces in Cambodia. Health Economics Review 9,
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De La Fuente, Alejandro; Rosales, Manuel; Jellema, Jon. 2017. The Impact of Fiscal Policy on Inequality
and Poverty in Zambia. Policy Research Working Paper; No. 8246. World Bank, Washington, DC.
© World Bank. https://openknowledge.worldbank.org/handle/10986/28907.
Flessa S, Jacobs B, Hui K, Thiede M, Appelt B. 2018. Costing of health Care Services in Three Provinces of
Cambodia. Final Report. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.
Sosa, Mariano, and Matthew Wai-Poi. Forthcoming. Fiscal Policy and Equity in Developing Countries: A
Survey of International Patterns and Lessons. Background paper for Poverty and Shared
Prosperity 2022, World Bank, Washington, DC.
World Bank. 2020. The Human Capital Index 2020 Update: Human Capital in the Time of COVID-19.
World Bank, Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/34432.
World Bank. 2022a. Cambodia Poverty Assessment: Toward a more inclusive and resilient Cambodia.
World Bank, Washington, DC. © World Bank.
World Bank. 2022b. Changing Course: 2022 Poverty and Shared Prosperity Report. World Bank,
Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/37739.
World Bank. 2023. Cambodia Economic Update - Post-COVID-19 Economic Recovery : Special Focus -
From Spending More to Spending Better : Toward Improved Human Development Outcomes
(English). Washington, D.C. : World Bank
Group. http://documents.worldbank.org/curated/en/099051523221517821/P17734003f2bcf02
b0a89500f61b1f3ff7b.
34
Appendix
Appendix A CEQ Technical Details

Additional Figures and Tables
Box A.1: Royal Government of Cambodia Interventions in Response to COVID-19
In response to COVID-19, the RGC introduced emergency interventions to mitigate the adverse COVID-19 impacts
on the economy and households and to ensure economic and social stability in 2020. The interventions include
social assistance measures, measures to stabilize the livelihoods of businesses and workers, measures to finance
businesses, and fiscal-related measures to increase financing and restore and promote growth in the post-
pandemic context. In addition, the RGC is implementing a COVID-19 masterplan to address the health response
to the crisis that has been directly supported through World Bank financing, including procurement of medical
supplies and equipment for treatment of infected cases and testing.
Announced measures include:

• introduction of COVID-19 cash transfers to poor and vulnerable households;
• tax relief for the tourism and garment, footwear and travel (GFT) goods manufacturing sectors;
• retraining and upskilling programs for laid-off workers in tourism and GFT goods sectors;
• unemployment benefits for suspended workers in GFT goods sector of US$ 70 per month (US$ 40 paid by the
government and US$ 30 paid by the factory);
• unemployment benefits of 20 percent of minimum wage for suspended workers employed in the tourism
sector (paid by the government);
• exemption of property registration tax for purchases below US$ 70,000;
• additional capital injection for the Rural Development Bank (RDB) to support agro-processing firms;
• establishment of a new SME Bank designed to support SMEs through co-financing and risk sharing with
commercial banks;
• establishment of a new Credit Guarantee Corporation of Cambodia (CGCC) that has launched the first
guarantee scheme;
• establishment of a new cash for work program targeting small infrastructure improvement projects;
• measures to improve the ease of doing business;
• actions to improve trade facilitation, including post audit clearance; and
• measures to inject liquidity into the financial sector through the temporary lowering of capital and reserve
requirements as well as regulatory forbearance.
The total fiscal cost of RGC’s COVID-19 response amounted to US$ 823 million in 2020 and US$ 689 million in
2021, out of which US$ 882 million is expected to be spent on social protection programs (US$ 500 million for
cash transfers, US$ 260 million for cash for work, US$ 122 for wage subsidies and training). SME support (RDB,
SME Bank, and CGCC) amounts to another US$ 600 million over 2020-2021.
35
Figure A.1: Fiscal Policy’s Impact on Poverty Headcount Ratio (bars) by Area of
Residence; Pre-fiscal Poverty Headcount Ratio (dots) by Area of Residence
3.0 30

2.5 25
2.0 20
Percentage
1.5 15
1.0 10
0.5 5
0.0 0
Cambodia Phnom Penh Other urban Rural
Poverty headcount Poverty gap Poverty severity
Figure A.2: Government Expenditure on Education and Health (% of GDP), 2009–2019 Average
A. Education B. Health
Malaysia Thailand
Vietnam Vietnam
Thailand Brunei Darussalam
Brunei Darussalam Malaysia
Indonesia Singapore
Philippines Cambodia
Singapore Philippines
Lao PDR Indonesia
Cambodia Lao PDR
Myanmar Myanmar
0.0 1.0 2.0 3.0 4.0 5.0 6.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0
Source: World Development Indicators.
Figure A.3: Government Expenditure on Education and Health (% of GDP), 2019

A. Education B. Health
Malaysia Thailand
Vietnam Singapore
Philippines Brunei Darussalam
Vietnam
Thailand
Malaysia
Cambodia
Philippines
Indonesia
Cambodia
Singapore Indonesia
Lao PDR Lao PDR
Myanmar Myanmar
0.0 1.0 2.0 3.0 4.0 5.0 0 0.5 1 1.5 2 2.5 3
36
Source: World Development Indicators.
Technical Details
At the national level, there are two major departments that collect domestic and trade taxes (General
Department of Tax and the General Department of Customs and Excise respectively), and two non-tax
departments (General Department of State Property and Non-Tax Revenue and the General Department
of Financial Industry) that collect non-tax revenue. These tax and non-tax administrations are under the
Ministry of Economy and Finance. Provincial offices have the discretion to collect stamp tax on motor
vehicles, excise on public lighting and wealth transfer tax.
Cambodia’s tax system has gone through several reforms over two decades. These include removing many
of Cambodia’s tax and custom duties (early 1990), introducing 10% Value-Added Tax (VAT) (1999), and
introducing 0.1% property tax (December 2009). Most recently, the exempted salary threshold has also
been increased from KHR 500,000 (effective before January 2015) to KHR 1,200,000 (effective from
January 2018), while the allowance for children and spouse has also been increased from KHR 75,000 to
KHR 150,000 (Law of Financial Management, 2017). More importantly, the simplified and estimated tax
regime was abolished in 2016, for which small taxpayers likely paid profit tax at approximately 2%, which
was lower than the 20% flat rate paid by large taxpayers under self-declaration or real tax regime. The
only remaining tax regime in Cambodia is self-declaration or real regime. Additionally, transfer pricing
rules based on the OECD’s arm’s length principal – guideline for multinationals to record and report all
transactions between two companies within the same corporate group – were also introduced in October
2017 to prevent transfer pricing abuse or transfer mispricing, which is an approach that corporation use
to manipulate market prices and underreport actual profits that in turn have negative effects on tax
collection.
The Revenue Mobilization Strategy 2014–2018 focused on efficiency more so than introducing new taxes
or increase tax rates. Increased revenue collection has been underpinned by government efforts to
modernize tax and customs administration, together with strong economic activity. The 2019–2023
revenue mobilization strategy has been adopted, of which the key objective is to further modernize tax
and customs administration and policy.
The Royal Government of Cambodia adopted the National Social Protection Policy framework (2016–
2025) which has two main pillars: social assistance and social security. The first pillar on social assistance
includes emergency response, human capital development, vocational training, welfare for vulnerable
people. The second pillar on social security includes pension, health insurance, employment injury
insurance, unemployment insurance, disability insurance. The National Social Protection Policy
framework (2016–2025) defined a set of public interventions to assist households and individuals to better
manage risks, shocks and reduce their vulnerability by providing them with a better access to social service
and employment. Social protection is beyond simple assistance as it provides investment in building
human capital and bolstering long-term productivity and promote inclusive growth. Social protection
interventions include cash benefits, direct in-kind transfer of goods and services, and tax breaks with social
37
purposes. The benefits are primarily targeted to low-income households and vulnerable individuals such
as disabled, elderly, unemployed and so forth.
Before the National Charter on Health Financing was adopted in 1996, the general population had access
to free medical care at public health facilities. The health sector reform in the context of the Charter
allowed public health facilities to collect user fees from all patients, except those who are poor and aimed
primarily to reduce unofficial charges and household out-of-pocket expenditure, improving quality of
health care, and providing incentives to medical staff.
Modeling direct taxes and social security contributions on CSES 2019/20 data
This section highlights the main characteristics of the tax and social security system in 2019, and the
assumptions made in estimating taxes and benefits for each household in the 2019/20 CSES.
Earnings reported in the CSES data are net of taxes and social security contributions (SSCs). Consequently,
the modeling sequence of tax and SSC calculations needs to be reversed. Normally, social security
contributions are subtracted from gross earnings to derive taxable income on which income taxes are
levied to derive net income. In the process of imputing of taxes and SSCs, salary taxes are first computed
on net incomes and then further SSCs are calculated with respect to taxable income.
The key parameters of the direct tax system are presented in Table A.1. Corporate taxes (e.g., profit and
turnover tax) are not modelled as part of the CEQ exercise as the allocation of these taxes to individual
households is generally extremely difficult and made additionally complicated by the fact that a
substantial proportion of small businesses operate outside of the formal sector.
38
Table A.1: Direct tax system parameters in Cambodia, 2019
Group Name Amount/rate
SSC parameters:
SSC maximal wage cap 1 200 000 KHR
SSC minimum wage cap 200 000 KHR
SSC rate, private sector employer 0.80%
contributions
HI – employer contribution 2.6%
HI – employee contribution 0%
Salary tax parameters:
Salary tax rate 1 5%
Salary tax threshold 1 1 200 000 KHR
Salary tax: child & spouse credit 150 000 KHR
Other tax parameters:
Capital tax/withholding tax rate 15%
Property tax rate 0.1%
- property tax threshold 100 000 000 KHR
Property rental tax rate 10%
Registration tax rate 4%
Means of transportation tax:
Motorcycle 0 KHR
Van – old 250 000 KHR
Van – new 141 000 KHR
Car – old 141 000 KHR
Car – new 100 000 KHR
Source: NSSF for SSC parameters (http://www.nssf.gov.kh).
Notes: Salary tax and SSC parameters are monthly values; other values are expressed in yearly amounts; Values for
means of transportation tax estimated from CSES data. The tax system parameters were essentially the same in
2019 and 2020 to clarify.
Salary Tax
To impute the salary tax individuals paid on their declared earnings, we first identify which individuals pay
taxes by specifying the formality status of their employment. Formal employment is defined using
information on occupation (ISCO codes) in the CSES and the degree of informality has been calibrated to
match the levels reported in the Cambodia Labor Force Survey (NIS, 2021). People working in agriculture
or trade, as well as Cambodians working abroad are assumed not to be formally employed, and
consequently not to pay salary tax, health insurance or Social Security Contributions. Incomes from the
main and secondary employment are handled separately, as there is no system of aggregating salary tax
from different income sources. Because residents are entitled to a child and spouse tax credit, children
are then assigned to a parent within the household. For tax purposes, children are identified as those aged
less than 14 or up to 25 who are attending school. Partners are defined as married spouses without
income from employment. Salary tax is calculated by reversing the tax schedule (Table A.1). This can be
39
understood as finding the tax amount that – after subtracting from taxable income - would result in the
reported net wage in the data, given salary tax rates, thresholds, and the family composition.
Social Security Contributions

Under Social Security Contributions (SSCs), the following three areas of the fiscal policy are examined
here: (i) pensions; (ii) injury insurance; and (iii) health insurance.
(i) Pensions: Unlike in earlier years of the CSES data, the 2019/20 dataset does not allow us to
specifically separate out pension benefits and thus to treat them correctly in accordance with the
CEQ terminology as deferred income (and thus constitute an element of Consumable, Disposable,
and market income), since there is no system of pension contributions these are not accounted
for in the calculations. Pension benefits in the 2019/20 data are declared together with other
welfare benefits and are as a result treated as such. However, since pensions are primarily
received by former civil servants, and have been very rarely reported in the CSES data in the past,
this omission should not constitute a serious source of bias of the overall results.
The National Social Security Fund for Civil Servants and the National Fund for Veterans, the two
key institutions involved in the provision of pension benefits are financed from the central budget,
and current benefits are not related to the history of contributions. Civil servants thus accumulate
entitlements to future benefits without explicitly paying contributions towards these benefits,
which implies that such pensions constitute a form of deferred earnings.
(ii) Injury insurance: Employment Injury Insurance exists for private employees managed by the
National Social Security Fund. Employers who employ 8 or more persons are obliged to pay 0.8%
of the average monthly salary in the enterprise as individual SSC contribution which covers all
employees in the enterprise. The minimum cap for wages is KHR 200,000 and the maximum cap
is KHR 1.2 million. In 2017 the system covered 1.183 million employees in 8507 enterprises (NSSF,
2018).
Unfortunately, the CSES data does not provide any information on the size of company in which
the respondents are employed. Several criteria related to the sector of employment, occupation
and earnings have been used in the simulation to narrow down the likelihood of being covered
by the system of contributions. The systemic thresholds and rates are applied to the declared
earnings of respondents identified as covered by the system after accounting for salary tax
payments. In a similar way to taxation, the SSC schedule needs to be reversed to obtain an
estimation of the contribution to injury insurance.
(iii) Health insurance: In September 2016, the Ministry of Health of Cambodia initiated a Health
Insurance scheme for private and public employees to cover their health care expenditure beyond
employment injuries covered by injury insurance. The scheme in 2019 set a contributions rate of
2.6% of the employees’ average monthly salary for health insurance. The contributions are paid
entirely by the employer. The Ministry of Health reported that 1,156,682 persons were registered
under the new health insurance scheme and paid KHR 154.8 billion in contributions in 2017 (See:
NSSF report 2018).
40
Health insurance contribution is computed in a similar way as injury insurance. Employer health
insurance contributions are calculated separately based on grossed-up wages. Health insurance
is calculated for the same minimum and maximum thresholds as SSC injury insurance.
Other direct taxes paid by households

The following five other direct taxes are also modeled in the exercise: (i) capital gains/withholding tax; (ii)
tax on property rental; (iii) registration tax; (iv) tax on means of transportation; (v) property tax.
(i) Withholding Tax: Interest and dividends income from the CSES data are used to impute the values
of the withholding tax paid by individual household, with a fixed 15% rate based on 12-month
recall of household income coming from other sources. Tax withholding applies to income from a
selection of services, rent, and savings including: (a) Payments for services e.g., consulting,
interest payment and royalties (15%); (b) Interest paid by a domestic bank or savings institution
on deposits (varies depending on the recipient).
(ii) Tax on Property Rental: A 10% rate is applied to the monthly household rental revenues from the
section on building ownership to estimate the amount paid as tax on property rental.
(iii) Registration Tax: Information on the value of income from the last 12 months from sale of
vehicles, land and property is used to calculate the registration tax paid. The main caveat here is
that the tax is assigned to the seller, not the purchaser (who is not identified in the data). Thus
implicitly – from the distributional point of view – we assume that the buyer and the seller are
placed in a similar section of the income distribution.
(iv) Tax on Means of Transportation: This tax is imposed on selected means of transportation and its
value depends on the parameters of the vehicle. The CSES data captures the state (new/old) of
the durable good when it was purchased. The state of the vehicle that was purchased is used in
the simulation. Since the survey did not capture all the necessary parameters of the vehicle which
determine the value of taxes (like year of production and engine size), the values of taxes are
imputed using information on the total value of property tax paid in the last 12 months (a single
total value including both movable and immovable properties). The rates are derived using
imputation from a regression of the value of the total tax on the number of new and old cars, and
the area of the house subjected to the tax. From 2017 onwards, motorcycles were not taxed under
the Means of Transportation Tax, so the tax on means of transportation imputed in the 2019/20
data is only for cars.
(v) Property tax: Information on self-assessed property value could be used to calculate the total tax.
However, the CSES data also includes a total value of tax on all property (transportation and
other). Property tax paid is therefore imputed after subtracting the transportation tax (given the
number of vehicles in the household and the procedure described above) from the total value of
the tax reported in the data.
Direct taxes which cannot be modeled due to data constraints are as follows:
41
(vi) Corporate income taxes (CIT): Previously known as annual tax on profit (TOP), corporate income
taxes are the largest component of direct tax but are not modeled for reasons explained above.
A 20% flat rate of TOP is applied to medium and large enterprises, while a progressive rates scale
ranging from 0 to 20% is applied for small enterprises. 22 Enterprises engaged in the production or
exploitation of oil, gas and natural resources are subjected to TOP at the rate of 30%. Insurance
companies are taxable at 5% on the gross premium income and 20% on other income derived
from non-insurance or reinsurance activities. TOP rates are set at zero percent for enterprises
engaged in a Qualified Investment Project (QIP) during the period of tax exemption 23 and 9% for
5 years of transitional period as determined by the Council for the Development of Cambodia
(CDC).
(vii) Tax on unused land: Tax levied annually at 2% of land value are not modeled as the CSES does
not include details on the use of land owned by households.
(viii) Stamp tax: A uniform rate is applied for legal documents. Not modelled due to lack of information
in the data.
Modeling indirect taxes and subsidies on CSES 2019/20 data
Three main categories of indirect taxes existed in Cambodia in 2019: (i) value added tax (vat); (ii) specific
tax (excise); and (iii) public lighting and accommodation taxes. Below, we briefly describe how they
operate and how the values of these taxes are imputed to individual households in the CSES data.
The system of indirect taxes in Cambodia

(i) Value Added Tax: The Value Added Tax (VAT) is applicable to real-regime enterprises and is
charged at 10% on the value of the supply of most goods and services. A 0% rate is used for
suppliers of goods and services for export-oriented garment enterprises as well as domestic
suppliers of paddy rice (PWC, 2015). There are several VAT-exempted products. The main
categories of exempted goods and services are public postal services, medical and dental services,
electricity, transportation of passengers by wholly state-owned public transport systems,
insurance services, primary financial services, and land.
(ii) Specific Taxes: Excise duties are levied on some goods (VBD-LOI, 2019): such as
• Air tickets sold in Cambodia (10%)
• Entertainment services (10%)
• Cigarettes and cigars (20%)
• Alcoholic beverages excluding beer (35%)
• Beer (30%)
• Non-alcoholic beverages (10%)
22
The classification of large, medium and small enterprises is based on their turnover, legal form and other criteria.
23
Tax exemption period for QIP is usually “trigger period” + 3-year period + priority period. Trigger period usually
ends after first profit is derived considering from the date of the receipt of the QIP certificate, while priority period
varies by type of business or industry that the QIP is involved and size of capital. The maximum total years could
reach 9 (see link to CDC’s website http://www.cambodiainvestment.gov.kh/investment-scheme/investment-
incentives.html for more detail).
42
• Telecommunications services (3%)
• Automobiles and spare parts (15, 25, 45%) – 15% is assumed in the simulations
• Petroleum, diesel, and gasoline (4, 10, 25, 33%) – 10% is assumed in the simulations
(iii) Public Lighting and Accommodation Tax: Public lighting tax is charged at 3% and is an indirect tax
levied on all types of alcohol and tobacco. It is levied on all steps of the supply chain.
Accommodation tax is levied on the supply of accommodation services by hotels, hostels, camping
grounds, etc. It does not include private rental and is levied at rate of 2%.
Modeling of indirect taxes on CSES 2019/20 data

The 2019/20 CSES data does not include a detailed expenditures diary and most of expenditure items are
reported in the form of recall expenditures. Therefore, recall values are used to model all indirect taxes in
this exercise. Food expenditures are recorded as recall expenditures during last 7 days. Based on the
frequency at which households purchase various goods and services, expenditures on non-food items are
recorded as 1-, 6- and 12-month(s) recall values. For simulation purposes all values are converted to
monthly equivalents.
Table A.2 provides an overview of the parameters used to compute VAT, Specific Tax (Excise), Public
Lighting and Accommodation tax for 115 product categories available in the data. The VAT rate is generally
uniform at 10% for most products, except for exempted goods and services. CSES data captures postal
services expenditures under a broader “Communication and postal services” category. Full 10% VAT rate
was assigned to this category, assuming that postal services comprise only a small portion of the whole
group (the category includes phone charges and internet service). For transportation services, it was not
possible to distinguish if the service used was provided by a private or public company. As a result, a
decision was made to assign 0% VAT assuming that many private service providers constitute part of the
informal economy. It was also assumed that unprocessed food, bought in the rural area is beyond the
scope of VAT, excluding it entirely from VAT taxation, while still taxing processed food products including
tea, spices, beverages, alcohol, and tobacco. The tax base for Public Lighting and Accommodation was
identified by reported expenditures on accommodation services, alcohol, and tobacco accordingly. For
obvious reasons, Public Lighting tax is computed only for the final value of sold products.
For Specific Tax, a uniform rate is assigned for whole groups of products in the data. For example, it is not
possible to assign the tax for fuels only, because fuels are part of a category “Operation of transport
equipment” which also includes parts, repairs and driving lessons. But we assume that fuel/gasoline
composes most of these expenditures and therefore, the tax rate for gasoline is assigned to the entire
category. Similarly, because of lack of granularity in the data, a uniform tax rate is assigned to alcohol and
tobacco (35% and 20% respectively).
Table A.2: VAT and specific tax rates

Code Description VAT Specific Public Accommodation
rate Tax lighting tax
rate tax
1 rice, quality 1 (kg) 0 0
2 rice, quality 2 (kg) 0 0
3 rice noodles/ fried noodle (kg) 0 0
4 Chinese noodle/ Khmer noodles (kg) 0 0
5 other cereals or flour and other bakery products (kg) 0.1 0
43
6 bread (piece) 0.1 0
7 mudfish (kg) 0 0
8 catfish (kg) 0 0
9 other inland fish (kg) 0 0
10 shrimp/lobster (kg) 0 0
11 crabs (kg) 0 0
12 other seafood (kg) 0 0
13 preserved or processed fish/seafood (kg) 0 0
14 pork (kg) 0 0
15 beef (kg) 0 0
16 duck (kg) 0 0
17 chicken (kg) 0 0
18 other meat products (kg) 0 0
19 eggs and egg-based products (piece) 0 0
20 milk or yoghurt(can) 0.1 0
21 oils or fats (kg) 0 0
22 banana (set) 0 0
23 mangoes (kg) 0 0
24 longan (mien) (kg) 0 0
25 papaya (kg) 0 0
26 tamarind (kg) 0 0
27 coconut (piece) 0 0
28 nuts and edible seeds (kg) 0 0
29 maize and corn crop (piece) 0 0
30 other fresh fruits (kg) 0 0
31 dried and preserved fruits (kg) 0 0
32 trakun (watercress marsh cabbage) (kg) 0 0
33 spring onion/ garlic/ leeks leaves (kg) 0 0
34 cabbage/ leaves (kg) 0 0
35 gourd, cucumber, pumpkin, eggplant (kg) 0 0
36 other fresh vegetables (kg) 0 0
37 prepared and preserved vegetables (kg) 0.1 0
38 tubers (potato, sweet potato, carrot, radish) (kg) 0 0
39 mushrooms/ dried mushrooms (kg) 0 0
40 pea, bean/ soybean/ bean sprout (kg) 0 0
41 sugar cane/ palm sugar (kg) 0 0
42 sweets (kg) 0 0
43 salt (kg) 0 0
44 pepper (kg) 0.1 0
45 monosodium glutamate (kg) 0.1 0
46 fish sources/ soy sources/ chilly sources (liter) 0 0
47 other ingredients (kg) 0.1 0
48 nutritive tablets (kg) 0.1 0
49 coffee, tea, and chocolate (kg) 0.1 0
50 bottled/mineral water (liter) 0.1 0.1
51 soft drinks, orange juices, fruit juices (liter) 0.1 0.1
52 ice cream (roll) 0.1 0
53 beer at home (liter) 0.1 0.35 Yes
54 wine at home (liter) 0.1 0.35 Yes
55 other alcohol not in bar or restaurant (liter) 0.1 0.35 Yes
56 cigarettes and other tobacco (roll) 0.1 0.2 Yes
57 food at school (Riels) 0.1 0
58 drinks at school (Riels) 0.1 0
59 food at work (Riels) 0.1 0
60 drinks at work (Riels) 0.1 0
61 food/snacks at restaurant, pub or café (Riels) 0.1 0
62 drinks at restaurant, pub or café (Riels) 0.1 0
44
63 prepared meals bought outside and eaten at home (Riels) 0.1 0
64 other food expenses (Riels) 0 0
101 Clothing 0.1 0
102 shoes, slippers 0.1 0
103 household textiles (cotton thread, cotton scarf, belt) 0.1 0
104 raincoat, umbrella 0.1 0
105 toothpaste, toothbrush, and tooth care 0.1 0
106 hair soap, cloth soap, lotion, powder, perfume 0.1 0
107 jewelry, watch, and clock 0.1 0
108 gasoline, diesel, and lubricant 0.1 0
109 local travel (Last 3 months) 0 0
110 hotel, guesthouse, and other accommodation (Last 3 months) 0.1 0 Yes
111 foreign travel 0.1 0.1
112 postal services/ package 0.1 0.03
113 car and travel insurance 0 0
114 costs for motorbikes (other than gasoline and purchase) 0.1 0.15
115 costs for cars (other than gasoline and car purchase) 0.1 0.15
116 telephone service (exclude telephone accessories) 0.1 0.03
117 internet service) 0.1 0.03
118 games of chance (lottery, football betting) 0.1 0.1
119 other recreation (movie, karaoke) 0.1 0
120 newspapers, magazine 0.1 0
121 books, papers and other stationaries 0.1 0
122 salary/wage for housekeeper 0 0
123 expense for children look after 0.1 0
124 spoon, fork, knife, broom, chopsticks 0.1 0
125 gardens, plants and flowers (not for agriculture) 0.1 0
126 pets and related costs 0.1 0
127 toys, games and hobbies 0.1 0
128 dwelling insurance and maintenance (excl improvements) 0 0
129 drugs bought with prescription or over the counter 0 0
130 medical products and assistive products 0 0
131 medical or dental consultation without overnight stay 0 0
132 medical or dental treatment with overnight stay 0 0
133 traditional medicine 0 0
134 health insurance 0 0
135 taxes on income (tax on salary) 0 0
136 taxes on property (e.g., houses, cars) 0 0
137 bank payback, other financial service or tong tin 0 0
138 wedding gift 0.1 0
139 other gift (funeral, bonkathen, bonpka) and other contribution to other household 0.1 0
140 other expenditure (specified) 0.1 0
201 water charges last month 0 0
202 sewage or waste disposal last month 0 0
203 garbage collection last month 0 0
204 electricity last month 0 0
205 gas - LPG last month 0.1 0
206 kerosene last month 0.1 0.1
207 firewood last month 0 0
208 charcoal last month 0.1 0
209 battery last month 0.1 0
210 other fuel last month 0 0
211 how much paid for rent last month; 0 0
Source: MEF.
45
Electricity subsidies
Electricity is not directly subsidized in Cambodia, but there exist special lower tariffs for poor households
identified by their low levels of electricity consumption. Due to the licensing system operating in
Cambodia and due to electrical network still being developed, there is no uniform tariff for the whole
country. Tariffs vary locally depending on the energy source used and are being approved by a central
agency, Energy Authority of Cambodia (EAC). For Phnom Penh, Kandal Province, and Provincial Town of
Kampong Speu, there is a volume differentiated tariff system, where special reduced tariffs are set for
poorest households consuming less energy. There are also special tariffs applicable to households in rural
areas. These tariffs are subsidized by the government.
Table A.3: Electricity energy prices depending on consumption and geography

kWh/month Phnom Penh and Provincial towns Other areas
Kandal provinces
<= 10 480 380 380
> 10 & <= 15 480 480 480
> 15 & <= 50 480 480 480
> 50 & <= 200 610 720 720
> 200 740 740 740
Source: The Council for the Development of Cambodia (CDC).
The 2019/20 CSES captures information on household spending on electricity. Respondents also provide
information on whether electricity is provided from the public network. Subsidies are estimated only for
those households drawing power from the public grid. For each area we assign a standard, non-subsidized
price per kWh of consumed electricity. From expenditures on electricity, we calculate consumption in
kWh, depending on geography (special provinces/other urban/other rural) and actual consumption. We
calculate the subsidy as the difference in standard price less subsidized price times consumption in kWh.
Modeling social transfers
In recent years, Cambodia has increased social spending. However, social transfers remain very limited.
In 2019, the government implemented a broad program for supporting pregnant women and infants in
the form of a Conditional Cash Transfer (MOE and MOH, 2019). This new Conditional Cash Transfer (CCT)
program is included in the CEQ analysis based on the eligibility criteria of recipients and total expenditure
on the program (which was 11,737.64 million Riels or 2.87 million US$ in 2019).24 In 2019, most assistance
focused on specific targeted programs to groups such as AIDS patients, victims of natural disasters and
people requiring emergency food assistance. Most support programs consisted of in-kind support and
were implemented on small scale (often with the help of development funds).
In the 2019/20 CSES data we can only identify one specific type of transfer support: government
scholarships. All other benefits have been classified in the data as “general welfare transfers”. 25 On top of
24
Official exchange rate for 2019 was 4092.78 per US$.
25
Other forms of transfers to civil servants operated in Cambodia in 2017 including family allowances. In the latter
case they were paid jointly with civil servant salaries and are thus included jointly with their labor income. Civil
46
those, since in 2019 the Conditional Cash Transfer was an element of the Cambodian fiscal system, we
model the CCT as part of the baseline system by granting US$ 63 per year for each child under the age of
three in families that are holders of the so-called IDPoor equity cards, an important element of the
Cambodian social support system, which identifies poor households. This imputation is based on the
general rules of the CCT program which grants US$ 190 over the course of three years to pregnant mothers
and children under the age of 2. Since we do not have information in the data on pregnancy, the
simulation targets the benefits towards households with children aged 0-2.
In-kind education benefits

Presently, formal education in Cambodia comprises of a 12-year system divided into a 6-3-3 format, which
includes six years of primary schooling, followed by three years lower-secondary and three years of upper-
secondary schooling. Public education in Cambodia is officially free of additional charges, but it is not
uncommon for schools and teachers to request additional fees, often officially to finance additional costs
of educational materials or to contribute towards after-school extra classes. Public tertiary education is
not free of charge and students are charged fees for their courses (e.g., Songkaeo and Yeong, 2016). In
parallel, there are private education institutions providing instruction at all levels of education including
universities.
The 2019/20 CSES provides information on whether a child is attending a public or a private school. To
distribute the benefits of the public education system, we use the age and school attendance of the child
available in the CSES data and average schooling costs for each level of education. Average schooling costs
are derived from the total government expenditures on education at each level (i.e., pre-primary, primary,
secondary, tertiary) divided by the number of students attending this level of public education in 2019
(cost values are based on the data from the Ministry of Education, Youth and Sport: Education strategic
plan: 2019-2023, number of students taken from Education Statistics and Indicators 2018-2019). Our
calculations cover also pre-primary and tertiary education expenditures (Table A.4).
Table A.4: Education expenditures in 2019

Number of students MoEYS exp. Expenditure per
(billion KHR/year) student
(thousand
KHR/month)
Pre-primary 217,509 246.8 94.5
Primary 2,040,257 1969.5 80.4
Secondary 931,406 1093.6 97.8
Tertiary 226,731 367.5 135.1
Total 3,415,903 3677.4 89.7
Source: Ministry of Education, Youth and Sport (2014, 2018).
servants and their families are also eligible for support through sickness benefits, employment injury benefits,
maternity benefits, invalidity benefits, and death benefits. These benefits are financed from the central budget by
the National Social Security Fund for Civil Servants (NSSFC) and are not based on previous contributions. War
veterans, army and police personnel are entitled to similar set of benefits paid by the National Fund for Veterans
(NFV).
47
To simulate in-kind education transfers, the theoretical monthly per capita expenditure for each level of
education is assigned to all children in the data attending public education. Out-of-Pocket (OOP) education
expenditures are considered. There is a strong rationale to include OOP expenditures because households
are contributing to the fiscal system due government under-funding of education costs. Sensitivity
analyses suggest that the addition or exclusion of OOP expenditures does not have significant implication
on findings.
In-kind health benefits

The health care system in Cambodia combines both public and private provision. While financing of public
health care consists of public funds, patient contributions take place in the form of user fees charged by
public hospitals and health centers. Individuals who have been assigned the Health Equity Fund card and
those covered by Health Insurance may be exempt from paying the user fees.
The Ministry of Health provides a detailed breakdown of its expenses, which allows to compute the
average costs of both inpatient and outpatient care.
Table A.5: Ministry of Health expenses in 2018 by type

Cases Total Cost Cost per case
(US$) (US$)
I. Total medical services 2,810,697 12,452,344 4.43
Outpatient Services 2,623,842 5,480,861 2.09
General treatment 127,800 3,169,514 24.80
Surgical Treatment 12,700 2,793,963 220.00
Regular births 30,489 620,511 20.35
Rescue vehicles 15,866 387,496 24.42
II. Non-medical services 286,526 1,929,084 6.73

Travel expenses 121,987 836,623 6.86
Food 163,415 1,075,611 6.58
Funeral 1,124 16,850 14.99
Total 6,194,446 28,762,857 4.64

Source: Ministry of Health (2018).
The 2019/20 CSES provides detailed information on health care usage during the 30 days prior to the
interview. The survey collects information on frequency of health care visits, type of facility visited
(public/private), length of hospitalization, and total out-of-pocket expenses incurred by each person in
the household.
Each recorded visit to a health care center is treated as an outpatient case and hospitalizations are treated
as inpatient interventions. When aggregated to population totals, the 2019/20 CSES reports overall
7,485,161 visits and 6,521,216 days spent in public hospitals for 623,854 patients during 2019.
48
Given the level of health utilization details in the CSES data and information on costs of health care
interventions in Cambodia provided in Flessa et al. (2018) and Jacobs et al. (2019), it is possible to apply a
more precise method of imputation of health care expenditure based on individual use of health care
services rather than impute average gains to all households. 26 Given the available data and information,
it is not possible to assign a cost to each specific medical procedure/service, but the data and information
on health care costs allow to distinguish cost of a medical consultation Out-Patient Day (OPD) and
hospitalization In-Patient Day (IPD). These can be calculated separately for Health Centers, and CPA3,
CPA2 and CPA1 facilities. Flessa et al. (2018) also provide details of the percentage of publicly subsidized
cost by health facility type.
Based on information from the CSES data, one can easily build variables for OPD visits during a month in
public health care facilities by type of facility, and number of IPD nights in facilities by type of facilities.
Since there is no detailed information on all visits regarding whether this was a public or private center,
assumptions are made on the place used based on the first and the last visit. When both the first and the
last visits took place in a public facility, it is assumed that all health visits reported were in a public facility.
When either the first or the last visit was in a private facility, one visit is subtracted, and all remaining
visits are treated as public. If both the first and the last visit reported were in a private facility, all the visits
are treated as private. In case of IPD, the hospitalized nights are considered to have been in a public facility
if any of the OPD visits was in a public facility.
Based on these numbers and the detailed costs per day, the total health care transfers per person is
computed and divided into a public sector cost and a user cost. In the case of people who report having a
Health Equity Card and for those whom we model as contributing to health insurance we set the subsidy
to the full cost of the reported treatment. For people who are not covered by health insurance we subtract
the non-subsidized part from their benefit. In this way we incorporate the out-of-pocket user fees that
need to be paid by patients over and above the level of the public subsidy.
26
In the calculations we were able to use the latest, updated version of cost estimations from Flessa et al. (2018)
available directly from the authors. We are very grateful to Flessa for making this data available.
49

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Policy Research Working Paper 10570

Fiscal Policy Effects on Poverty

Poverty and Equity Global Practice

Produced by the Research Support Team

JEL Codes: D31, H2, H5, I38, O23

2. Taxes and Social Spending in Cambodia

Evolution of government revenues and spending between 2009 and 2019

Figure 1: Domestic revenue and expenditure in Cambodia (% of GDP), 2009-2019

Tax system in Cambodia

Social security contributions

Table 2: Central Government Spending, 2019

Central Government Expenditure 27,317 24.8

3. Methodology, Data, and Assumptions

Figure 5: CEQ basic income concepts

Source: Excerpted from Lustig (2018).

Empirical Approach and Allocation Overview

Step 4: Build the income aggregates according to CEQ concepts.

Macro-validation of the simulated fiscal policy elements

Table 3: Simulation results and validation

Size effect of fiscal interventions

Market income Full system -0.6

Consumable income Indirect

Final income In-kind

Figure 8: Gini index before and after fiscal interventions in

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Figure 10: Poverty headcount before and after fiscal interventions

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

High income Upper middle income Lower middle income Low

Cambodia Phnom Penh Other Urban Rural

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Table 4: Fiscal policy’s impact on inequality and poverty by area of residence

Fiscal Impoverishment and Fiscal Gains to the Poor

Table 5: Fiscal impoverishment and fiscal gains to the poor

Contribution of Individual Interventions to Poverty and Inequality Reduction

Box 1: Kakwani Index of Progressivity

Taxes and Transfers and their Effect on Inequality

Marginal contribution to equality

(Change in Gini Points)

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Figure 14: Progressivity and redistributive effect of transfers and subsidies

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Figure 15: Marginal contribution of taxes and transfers to poverty

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Heterogeneity of Effects across Deciles

Figure 16: Distribution of direct taxes and direct transfers

Proportion of income (%)

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Figure 18: Percent of households with an Equity Card and CCT

Equity Cardholders (IDPoor) CCT

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

B. Percent of households visiting a public health

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Figure 20: Distribution of in-kind transfers by decile

Source: Authors’ calculations based on CSES 2019/20 and

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Limitations and interpretations

5. Potential Reforms and Policy Direction

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

Figure 24: Impact of fiscal policy on short-term poverty in LMICs

Appendix A CEQ Technical Details

Box A.1: Royal Government of Cambodia Interventions in Response to COVID-19

Announced measures include: