Tax Expenditures in Germany

Tax expenditures – tax deductions, reduced rates and other special tax provisions – are a fixture of the policy toolkit worldwide. They are deployed for a wide range of purposes: stimulating investment, advancing social objectives, cushioning structural change, and other policy goals. They are frequently criticized as ineffective, costly or even harmful. Whether such criticism is warranted can only be judged case by case, on the basis of careful evaluations. Yet such evaluations are often lacking, leaving policymakers with an incomplete evidence base for their decisions.

In Germany, too, tax expenditures are once again at the center of intense political debate – not least for fiscal reasons, given the strain on public finances. Even so, it remains nearly impossible to obtain a reliable overview of the full range of tax expenditures. The most recent estimate puts their cost at 77 billion euros. Federal reporting, however, covers only a fraction of the measures in question. Two major evaluation rounds have in the past yielded important insights into the effectiveness of tax expenditures and identified corresponding needs for reform. Implementation, however, has been sluggish, and the findings are losing currency.

Against this backdrop, FiFo Cologne, the German Institute of Development and Sustainability (IDOS) and the Council on Economic Policies (CEP) invite you to the presentation and discussion of the country report on tax expenditures in Germany. The study’s authors – Michael Thöne, Managing Director of FiFo Cologne, and Christian von Haldenwang, Senior Researcher at IDOS – will provide an overview of the tax expenditures granted in Germany and the conceptual and political questions they raise. They will also outline the framework within which tax expenditures are reported and decided upon, and present approaches to strengthening the evidence base for a more effective use of tax expenditures. The report is the twelfth country analysis in a joint series by CEP and IDOS, which systematically examines national tax expenditure systems – covering transparency and costs, as well as evaluations and the political economy for reform.