Tackling Inequality Through Tax Expenditure Reform

This policy brief was published by the Task Force “Social Cohesion and the State” on the T20 Saudi Arabia website here.

Inequality endangers social cohesion and hampers economic growth, and as a consequence of the COVID-19 pandemic, inequality is set to increase. Hence, the commitment of the Group of Twenty (G20) to address inequality in the context of the Sustainable Development Goals (SDGs) is arguably more important than ever. While fiscal policies are the main instruments used to reduce inequality, countries have so far neglected the role of tax expenditures (TEs). This is particularly problematic as TEs, including the provisions that aim to mitigate TEs, may result in higher inequality. It is, therefore, critical for G20 governments to estimate and report the cost of TEs and assess their distributive impact. Thus, reforming TEs will enhance the effectiveness and fairness of tax systems and help to address the rise in inequality resulting from the COVID-19 pandemic.