June 2018 | by Jean Ross, International Budget Partnership Consultant
Tax expenditures are provisions that reduce the amount of tax that is paid by providing special treatment to a particular class of individual, industry, or activity. Economists call this a “tax expenditure” to make the point that the economic impact of these provisions is conceptually equivalent to that of direct government spending. Tax expenditures are important because they:
- are typically subject to less public oversight and are less transparent than “on budget” spending;
- reduce the revenues available for public spending; and
- can make the tax system less equitable by providing benefits to the wealthy and forcing governments to rely on indirect taxes that are disproportionately paid by low- and middle-income households to replace the revenues lost through the tax expenditure.
This guide (available in English and Spanish) provides an introduction to approaches that can be used to develop a research and advocacy plan for those who are new to analyzing taxes and tax expenditures in Latin America. The guide focuses on how to define the problem you wish to research and sources of information that can be used to understand and develop possible solutions.