Tax Expenditures and Inequality

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Tax expenditures are used widely by governments across the world to pursue different public policy goals including boosting innovation and R&D, job creation, greening the economy as well as mitigating inequality and tackling poverty. Yet, besides their stated goals (which are often aligned with a sustainable agenda), these provisions are costly and usually ineffective as well as inefficient in reaching their policy objectives.

The impact of tax expenditures on inequality is a case in point. Whereas some tax expenditures are explicitly designed to tackle inequality, others pursue different policy goals but trigger externalities that indirectly affect the distribution of income and wealth. Against this backdrop, estimating and reporting the fiscal cost of tax expenditures would enhance transparency and accountability and, at the same time, would allow governments worldwide to evaluate the effectiveness and efficiency of these provisions. The latter is crucial in order to better target their policy objectives as well as to ease budget constraints which, in turn, would contribute to financing the 2030 Agenda for Sustainable Development.