Tax Expenditures and Public Scrutiny – Launching the Global Tax Expenditures Transparency Index (GTETI)

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The Global Tax Expenditures Transparency Index (GTETI)

Governments use tax expenditures (TEs) – also called tax breaks, tax reliefs or tax subsidies – to pursue a variety of policy goals. TEs are deviations from the benchmark or standard tax system that provide preferential tax treatment to individuals or businesses. They can trigger substantial tax revenue losses. According to the Global Tax Expenditures Database (GTED), the global average revenue forgone due to TEs for the 105 reporting countries stood at 3.8 percent of GDP and 23.0 percent of tax revenue, with figures reaching 9 percent of GDP or more in countries such as Czechia, Finland, Jordan, Puerto Rico or the Netherlands (Redonda et al., 2023).

Tax Expenditure Reporting

Given the magnitude of TEs, the estimation and reporting of their fiscal cost should be a priority for governments worldwide. Such estimates are a necessary input to evaluate the effectiveness and efficiency of TE provisions and, ultimately, to decide which provisions to keep, modify or remove. However, the quality of TE reporting is often poor and important data is frequently missing.

Few studies compare TE reporting across countries. For instance, Kassim and Mansour (2018) evaluate the TE reports of 21 developing and transition economies, using a matrix of dimensions that characterize good practices in TE reporting. Redonda and Neubig (2018) apply a similar approach to the 43 G20 and OECD economies. Based on GTED data, von Haldenwang et al. (2021) assess the large variation in the quality of TE reporting worldwide.

Assessment criteria and dimensions 

The Global Tax Expenditures Transparency Index (GTETI) is the first comparative assessment of TE reporting that covers countries worldwide. Building on the data collection and classifications developed to construct the GTED, the GTETI provides a systematic framework to rank countries according to the regularity, quality and scope of their TE reports. Countries are not compared according to the amount of revenue forgone they report, but rather assessed on five dimensions: (1) public availability of TE reports, (2) an institutional framework that ensures transparency and accountability, (3) scope of reporting and the methodology used, (4) availability and comprehensiveness of descriptive TE data and (5) availability and comprehensiveness of the information on revenue forgone and TE evaluations.

The GTETI aims at increasing transparency and accountability in the TE field, promoting public debate and encouraging governments to improve their TE reporting as a first necessary (though certainly not sufficient) step towards comprehensive evidence-based TE reform.