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### Scale and fiscal significance of tax expenditures (TEs)
- TEs are deviations from a benchmark tax system used to provide financial support or benefits to individuals, companies, and other entities, including nongovernment organizations.
- TEs can have a budgetary impact similar to direct outlays: after the support is provided, less money is available to fund other government priorities.
- They are ubiquitous and often sizeable:
  - Estimated to reduce tax revenues by an average of around 4 percent of GDP among countries that report on them.
  - Some countries forgo more than 10 percent of GDP on preferential tax treatment of specific sectors, firms, and/or individuals.
- Transparency on revenue impact has improved: 102 countries provide some public information on related costs, albeit with varying coverage and quality.
- Published TE costing estimates are often not comprehensive and are likely to be a lower bound in many cases.
- Idiosyncrasies among benchmark tax systems and differences in costing approaches limit the utility of cross-country comparisons.

### Need for systematic evaluation and transparency
- Enhancing transparency on revenue impact is necessary but not sufficient to ensure funds are well spent.
- Systematic evaluations (as opposed to ad hoc discussions) are needed to guide informed decision-making and to avoid narratives driven primarily by profiting stakeholders.
- Definition of TE “evaluation” in the note: a process that seeks to systematically inform policymakers on the desirability of introducing or maintaining specific tax benefits by gathering and analyzing available quantitative and qualitative information on their effects.
- Minimum requirements for an evaluation:
  - The application of a structured questionnaire to guide and delineate the effort.
  - Focus on the policy objective of a TE and whether it effectively and efficiently contributes to that objective.
  - Where possible, identification of behavioral responses to refine static cost estimates (for instance, detecting significant potential for noncompliance would imply actual revenue cost likely exceeds the static estimate).
- Only a small group of countries evaluate TEs with any regularity; even within this group, evaluations are often ad hoc rather than institutionalized.
- Examples of legal requirements:
  - Germany: all subsidies and TEs are required to undergo a regular evaluation in terms of target attainment.
  - The Netherlands: requires evaluations of TEs to be carried out every four to seven years.
- Good-practice reporting includes disclosure of details that allow further analysis of a TE’s performance similar to that of spending programs (for instance, publishing expenditures granted to firms by sectors and policy objectives or the distribution of benefits across household income levels).

### Benchmark tax system: definition and approaches
- A benchmark tax system serves as the basis to identify the nature and extent of TEs and should be grounded in principles of good tax policy design, including fairness, efficiency, and simplicity.
- The benchmark should:
  - Be as broad as possible and aim at avoiding exceptions to the general rule.
  - Be well defined and transparent.
  - Be limited to the key features of the main taxes.
  - Represent the standard tax treatment that applies to similar taxpayers or types of activity.
  - Exclude provisions that favor particular groups, business activities, or regions.
  - Be consistent across taxes and defined so the resulting list of TEs informs policymakers about possible reform options.
- Three approaches to defining the benchmark tax system:
  - The conceptual approach: relies on a clearly formulated normative benchmark tax system based on theoretical concepts of tax policy.
  - The reference tax law approach: more practical and takes as the starting point a discussion of existing tax provisions.
  - The expenditure equivalent approach: defines the benchmark based on provisions that could equally well be provided through the expenditure side.
- Combinations of approaches are possible (for example, incorporating elements of the reference tax law when the guiding principle is conceptual).

### Institutional implications and best-practice considerations
- To subject all public spending to the same rigor in evaluations and enable the same level of transparency, TEs should be treated comparably to direct spending programs in reporting and evaluation.
- Evaluations can be tailored to different levels of data availability and analytical capacity.
- Institutionalization and partnerships matter: in practice, reports on benefits of sector-specific measures are often prepared by line ministries, industry organizations, or investment promotion agencies; relying solely on such sources risks biased assessments.

### Box 1 — The Benchmark System: purpose, scope, and evaluation timing
- Purpose and role:
  - A systematic approach to defining the benchmark system dramatically improves the quality of debate on the use of TEs and the scope for meaningful policy reform.
  - A benchmark system determines which deviations are treated as TEs and thus affects reporting and evaluation scope (example: in Germany, reduced VAT rates are excluded from TE reporting and evaluation).
- Scope, depth, and timing:
  - Evaluating each TE annually is not feasible; desirable practice is to evaluate all TEs periodically over a multiyear evaluation cycle.
  - A broad scope enables analysis of duplications and redundancies and supports thematic evaluations that cover several TEs with similar objectives.
  - With an average of 100 TE provisions in countries reporting on the costs of TEs, conducting in-depth research on all TEs is often not practically feasible.
  - Differentiation by importance and structural nature helps keep the process manageable and cost-effective:
    - Germany: large-scale evaluations are conducted once per legislative cycle with a mandate to evaluate every TE at least once every 10 years.
    - Ireland: envisages TE evaluations every five years for each TE, recognizing that quantitative assessment cannot be prepared for many TEs.
    - The UK: proposals to accelerate in-depth evaluations for newly identified high-risk areas (National Audit Office 2020).
  - Ex ante evaluations help constrain proliferation of low-value TEs; when in-depth ex ante assessment is not possible, introducing new TEs as temporary instruments with permanence conditional on an initial evaluation is an alternative.
- Core questions evaluations should answer:
  - Effectiveness: Is a TE effective in achieving its stated or implied objectives? Would the desired behavior occur in the absence of the TE? What is the potential for displacement effects?
  - Costs: At what direct and indirect costs are objectives achieved? How large and how reliable are cost estimates? What is the potential for market distortions?
  - Potential for improvement: Could benefits be delivered more effectively by redesign or through direct expenditure? Does the TE overlap with other TEs or direct expenditure programs?
- Diagnostic steps and concepts:
  - Understand how a TE works, whom it benefits, and its intended purpose—require consultation with stakeholders, administrators, and experts.
  - Require an explicit statement of intended policy objective for all new measures.
  - Map causal pathways ("theory of change" or "logic modeling") to identify direct and indirect effects and potential unwanted outcomes.
  - Compare ex post performance against ex ante predictions to foster transparency and feedback.
  - Weight revenue forgone by the marginal cost of public funds when comparing social benefits and costs (the marginal cost generally exceeds unity).
- Empirical and practical findings:
  - Von Haldenwang and others (2021): for almost 70 percent of TEs captured in the Global Tax Expenditures Database, revenue estimates are not linked to information on the policy objective it is supposed to serve.
  - Administrative and governance weaknesses can open TEs to improper claims or corruption, affecting tax morale.
- Tools and indicators:
  - Range of approaches: qualitative indicators → reduced-form estimation → complex structural models (CGE, linked CGE-MSM, microsimulation models).
  - Minimum: construct a basic set of indicators summarizing behavioral incentives and direct costs/benefits.
  - Useful indicators (where feasible):
    - Direct revenue forgone.
    - Number of participants or beneficiaries.
    - Impact effect on beneficiaries’ tax liability.
    - Overall impact on the posttax income distribution (for instance, as measured by the Gini coefficient).
    - Forward-looking average and marginal effective tax rates; summary statistics from simulation models.
  - Data sources and models vary by tax base; for example, VAT expenditures often rely on household income and expenditure surveys and microsimulation models.
  - Some outcomes targeted by TEs (innovation, technology spillovers) are inherently hard to measure; indicators such as number of registered patents or number of PhDs on payroll must be interpreted with caution.
- Practical guidance on evaluation methods and triage:
  - Differentiate depth and frequency of evaluations based on relative importance and nature of TEs.
  - Many evaluations will need to be qualitative and less resource intensive; reserve quantitative, resource-intensive methods for the most important or structural TEs.
  - Construct indicators at introduction of a TE and update them regularly to enable both ex ante and ex post assessment.

### Box 2 — Sample Evaluation Questions and practical implementation
- Measuring direct and indirect effects:
  - Direct and indirect costs of tax incentives can exceed measured benefits; indirect effects are often particularly challenging to measure.
  - Structural models may be applied for the most substantial TEs but may lack sufficient detail for meaningful spillover modeling.
  - Qualitative approaches (surveys, focus groups, in-depth case studies) can provide important insights when structural modeling is insufficient.
  - Country examples:
    - Canada publishes one to three detailed evaluation studies of specific TEs as part of its regular and comprehensive TE report; many of these evaluations are qualitative in nature.
    - An ex ante assessment using CGE/MSM/I-O approaches was used to assess the economic impact of a tax incentive package to induce Tesla to build a Gigafactory in Nevada (Applied Economics 2014).
- Ex ante versus ex post evaluations:
  - Ex ante:
    - Draw on different methods than ex post evaluations and may not make precise predictions about behavioral effects.
    - A standardized catalog of questions can yield valuable qualitative information.
    - Static cost estimates should be prepared as part of an ex ante evaluation.
    - Irish guidelines require ex ante assessment for costly TEs to provide information on:
      1. the objective of the TE;
      2. the market failure that is being addressed;
      3. why a TE is the best approach to deliver the benefit;
      4. potential redundancies, displacement, and opportunity costs; and
      5. administrative and compliance costs as well abusive claims and other effects.
    - Sometimes experiments can be conducted to pilot measures before broader roll-out.
  - Ex post:
    - Can compare predicted social benefits and costs from the ex ante assessment with ex post results.
    - Require sufficient data and often benefit from rigorous quantitative identification strategies to determine “additionality.”
- Practical implementation — data, methods, and prioritization:
  - Administrative taxpayer data are often the most comprehensive but may lack detail on targeted outcomes.
  - Sufficient lead time is required to secure access to selected data sources; reporting requirements may need to be expanded.
  - Be selective in conducting in-depth analyses; prioritize TEs by economic or political importance and feasibility of rigorous causal evaluation.
  - Leverage administrative data and supplement with targeted surveys, household budget or consumption surveys, sectoral surveys, and national accounts (I-O and S-U data).
  - Establish data protocols and legal safeguards where data are sourced from other agencies.
  - For large TEs, microsimulation, input-output (I-O), applied general equilibrium, or CGE models can be feasible for ex ante behavioral and spillover estimates.
- Institutionalization and partnerships:
  - Coordination between the Ministry of Finance and other public institutions (Auditor General, line ministries, fiscal councils) is often required.
  - Centralized oversight under the Ministry of Finance or strong involvement by its Tax Policy Unit is recommended.
  - External partnerships provide specialized knowledge and independence but may raise consistency, institutional memory, and data-access challenges.
  - Reported outsourcing costs:
    - Specific TE evaluations in the UK: EUR 60,000–290,000.
    - Wider evaluation cycle in Germany across a broad range of TEs: ~EUR 300,000.
- Returns to transparency:
  - Publishing TE cost reports is common; the level of detail varies across jurisdictions.
  - Some jurisdictions publish beneficiaries of specific TEs to increase transparency (example: Portugal discloses beneficiaries of corporate tax benefits exceeding EUR 1,000).
  - Increasing availability of anonymized administrative data supports independent external research and evaluation.
  - Commitments to publish commissioned independent reports unaltered contribute to credibility; companion statements can be published where disagreements exist.
- Ex post evaluation process (steps):
  1. Review legislative history, including ex ante evaluation.
  2. Meet with stakeholders.
  3. Review literature.
  4. Develop evaluation plan.
  5. Make data arrangements.
  6. Perform evaluation.
  7. Draft report.
  8. Communicate findings and publish report.
- Key practical recommendations:
  - Even comparatively simple qualitative and partial quantitative analyses are preferable to ceding the discussion of benefits to stakeholders.
  - With limited resources, countries should initially focus on the most important TEs and gradually expand evaluation mandates.
  - A core requirement of ex ante assessment should be determining information needs for future ex post evaluations; consider additional reporting requirements for beneficiaries at introduction where needed.
  - Evaluation strategies for direct expenditures and TEs aimed at the same policy outcomes will often be similar, allowing synergies across public institutions.

_Italic: From Tax Expenditure Reporting to Evaluation — Conclusion (How To Notes), International Monetary Fund, November 2022_

### Conclusion �������������������������������������������������������������������������������������������������������������

### Conclusion

### Scale and fiscal significance of tax expenditures (TEs)
- TEs are deviations from a benchmark tax system used to provide financial support or benefits to individuals, companies, and other entities, including nongovernment organizations.
- TEs can have a budgetary impact similar to direct outlays: after the support is provided, less money is available to fund other government priorities.
- They are ubiquitous and often sizeable:
  - Estimated to reduce tax revenues by an average of around 4 percent of GDP among countries that report on them.
  - Some countries forgo more than 10 percent of GDP on preferential tax treatment of specific sectors, firms, and/or individuals.
- Transparency on revenue impact has improved: 102 countries provide some public information on related costs, albeit with varying coverage and quality.
- Published TE costing estimates are often not comprehensive and are likely to be a lower bound in many cases.
- Idiosyncrasies among benchmark tax systems and differences in costing approaches limit the utility of cross-country comparisons.

### Need for systematic evaluation and transparency
- Enhancing transparency on revenue impact is necessary but not sufficient to ensure funds are well spent.
- Systematic evaluations (as opposed to ad hoc discussions) are needed to guide informed decision-making and to avoid narratives driven primarily by profiting stakeholders.
- By TE “evaluation,” the note means a process that seeks to systematically inform policymakers on the desirability of introducing or maintaining specific tax benefits by gathering and analyzing available quantitative and qualitative information on their effects.
- Minimum requirements for an evaluation:
  - The application of a structured questionnaire to guide and delineate the effort.
  - Focus on the policy objective of a TE and whether it effectively and efficiently contributes to that objective.
  - Where possible, identification of behavioral responses to refine static cost estimates (for instance, detecting significant potential for noncompliance would imply actual revenue cost likely exceeds the static estimate).
- Only a small group of countries evaluate TEs with any regularity; even within this group, evaluations are often ad hoc rather than institutionalized.
- Examples of legal requirements:
  - Germany: all subsidies and TEs are required to undergo a regular evaluation in terms of target attainment.
  - The Netherlands: requires evaluations of TEs to be carried out every four to seven years.
- Good-practice reporting includes disclosure of details that allow further analysis of a TE’s performance similar to that of spending programs (for instance, publishing expenditures granted to firms by sectors and policy objectives or the distribution of benefits across household income levels).

### Benchmark tax system: definition and approaches
- A benchmark tax system serves as the basis to identify the nature and extent of TEs and should be grounded in principles of good tax policy design, including fairness, efficiency, and simplicity.
- The benchmark should:
  - Be as broad as possible and aim at avoiding exceptions to the general rule.
  - Be well defined and transparent.
  - Be limited to the key features of the main taxes.
  - Represent the standard tax treatment that applies to similar taxpayers or types of activity.
  - Exclude provisions that favor particular groups, business activities, or regions.
  - Be consistent across taxes and defined so the resulting list of TEs informs policymakers about possible reform options.
- Three approaches to defining the benchmark tax system:
  - The conceptual approach: relies on a clearly formulated normative benchmark tax system based on theoretical concepts of tax policy.
  - The reference tax law approach: more practical and takes as the starting point a discussion of existing tax provisions.
  - The expenditure equivalent approach: defines the benchmark based on provisions that could equally well be provided through the expenditure side.
- Combinations of approaches are possible (for example, incorporating elements of the reference tax law when the guiding principle is conceptual).

### Institutional implications and best-practice considerations
- To subject all public spending to the same rigor in evaluations and enable the same level of transparency, TEs should be treated comparably to direct spending programs in reporting and evaluation.
- Evaluations can be tailored to different levels of data availability and analytical capacity.
- Institutionalization and partnerships matter: in practice, reports on benefits of sector-specific measures are often prepared by line ministries, industry organizations, or investment promotion agencies; relying solely on such sources risks biased assessments.

_Italic: From Tax Expenditure Reporting to Evaluation — Conclusion (How To Notes), International Monetary Fund, November 2022_

### Box 1. The Benchmark System

### Box 1. The Benchmark System

### Purpose and role of a benchmark system
- A systematic approach to defining the benchmark system dramatically improves the quality of debate on the use of tax expenditures (TEs) and the scope for meaningful policy reform.
- A benchmark system determines which deviations from the tax system are treated as TEs and thus affects the scope of reporting and evaluation (for example, in Germany, reduced VAT rates are excluded from TE reporting and evaluation).

### Scope, depth, and timing of evaluations
- Evaluating each TE annually is not feasible; desirable practice is to evaluate all TEs periodically over a multiyear evaluation cycle.
- A broad scope enables analysis of duplications and redundancies and supports thematic evaluations that cover several TEs with similar objectives.
- With an average of 100 TE provisions in countries reporting on the costs of TEs, conducting in-depth research on all TEs is often not practically feasible.
- Differentiation of evaluation efforts by importance and structural nature of TEs helps keep the process manageable and cost-effective:
  - Germany: large-scale evaluations are conducted once per legislative cycle with a mandate to evaluate every TE at least once every 10 years.
  - Ireland: envisages TE evaluations every five years for each TE, recognizing that quantitative assessment cannot be prepared for many TEs.
  - The UK: proposals to accelerate in-depth evaluations for newly identified high-risk areas (National Audit Office 2020).
- Ex ante evaluations (before introducing a new TE) help constrain proliferation of low-value TEs; when in-depth ex ante assessment is not possible, introducing new TEs as temporary instruments with permanence conditional on an initial evaluation is an alternative.

### What evaluations should answer (core questions)
- Effectiveness
  - Is a TE effective in achieving its stated or implied objectives? (Most TEs aim at changing behavior or supporting redistribution.)
  - Would the desired behavior occur in the absence of the TE? What is the potential for displacement effects?
- Costs
  - At what direct and indirect costs are objectives achieved? Costs go beyond revenue forgone and include distortions and administrative and compliance costs.
  - How large and how reliable are cost estimates for the program? What is the potential for market distortions?
- Potential for improvement
  - Could benefits be delivered more effectively by redesign (targeting, different tax mechanism) or through direct expenditure?
  - Does the TE overlap with other TEs or direct expenditure programs aimed at similar objectives?

### Key diagnostic steps and concepts
- Understand how a TE works, whom it benefits, and its intended purpose—require consultation with stakeholders, administrators, and experts.
- Require an explicit statement of intended policy objective for all new measures to facilitate evaluation.
- Map causal pathways ("theory of change" or "logic modeling") to identify direct and indirect effects and potential unwanted outcomes.
- Compare ex post performance against ex ante predictions to foster transparency and feedback on ex ante assessments.
- Weight revenue forgone by the marginal cost of public funds when comparing social benefits and costs (the marginal cost generally exceeds unity).

### Empirical findings and practical considerations from the source
- Von Haldenwang and others (2021) report that for almost 70 percent of TEs captured in the Global Tax Expenditures Database, revenue estimates are not linked to information on the policy objective it is supposed to serve.
- Administrative and governance weaknesses can open TEs to improper claims or corruption, affecting tax morale.
- Examples of practical country practices are summarized in tabular form (TE reporting and evaluation in selected economies; TE counts and total tax expenditures by country are presented in figures).

### Tools and indicators for measuring impact
- Range of approaches: qualitative indicators → reduced-form estimation → complex structural models (CGE, linked CGE-MSM, microsimulation models).
- Minimum: construct a basic set of indicators summarizing behavioral incentives and direct costs/benefits.
- Useful indicators (where feasible):
  - Direct revenue forgone.
  - Number of participants or beneficiaries.
  - Impact effect on beneficiaries’ tax liability.
  - Overall impact on the posttax income distribution (for instance, as measured by the Gini coefficient).
  - Forward-looking average and marginal effective tax rates; summary statistics from simulation models.
- Data sources and models vary by tax base; for example, VAT expenditures often rely on household income and expenditure surveys and microsimulation models to assess distributional effects.
- Some outcomes targeted by TEs (innovation, technology spillovers) are inherently hard to measure; indicators such as number of registered patents or number of PhDs on payroll must be interpreted with caution.

### Practical guidance on evaluation methods and triage
- Differentiate depth and frequency of evaluations based on relative importance and nature of TEs; allow flexibility to accelerate in-depth analysis for high-risk or newly identified areas.
- Many evaluations will need to be qualitative and less resource intensive; reserve quantitative, resource-intensive methods for the most important or structural TEs.
- When conducting impact evaluations, estimating a credible counterfactual is often the most challenging and resource-intensive component.
- Construct indicators at introduction of a TE and update them regularly to enable both ex ante and ex post assessment.

*Italicized source attribution: Box 1. The Benchmark System, HOW TO EvALUATE TAX EXPENDITURES, International Monetary Fund | November 2022.*

### Box 2. Sample Evaluation Questions

### Box 2. Sample Evaluation Questions

### Measuring direct and indirect effects
- Direct and indirect costs of tax incentives can exceed measured benefits; indirect effects are often particularly challenging to measure.
- Structural models can be applied for the most substantial TEs but may lack sufficient detail to meaningfully model spillover effects on employment, wages, and economic growth.
- Qualitative approaches (surveys, focus groups, in-depth case studies) can provide important insights on indirect effects when structural modeling is insufficient.
- Country examples:
  - Canada publishes one to three detailed evaluation studies of specific TEs as part of its regular and comprehensive TE report; many of these evaluations are qualitative in nature.
  - An ex ante assessment using CGE/MSM/I-O approaches was used to assess the economic impact of a tax incentive package to induce Tesla to build a Gigafactory in Nevada (Applied Economics 2014).

### Ex ante versus ex post evaluations
- Ex ante evaluations:
  - Draw on a different set of methods than ex post evaluations and may not make precise predictions about behavioral effects.
  - A standardized catalog of questions can yield valuable qualitative information on relevance and potential effectiveness of a new TE.
  - Static cost estimates should be prepared as part of an ex ante evaluation.
  - Irish evaluation guidelines require ex ante assessment for costly TEs to provide information on:
    1. the objective of the TE;
    2. the market failure that is being addressed;
    3. why a TE is the best approach to deliver the benefit;
    4. potential redundancies, displacement, and opportunity costs; and
    5. administrative and compliance costs as well abusive claims and other effects.
  - Sometimes experiments can be conducted to pilot measures before broader roll-out.
- Ex post evaluations:
  - Can compare predicted social benefits and costs from the ex ante assessment with ex post results.
  - Require sufficient data and often benefit from rigorous quantitative identification strategies to determine “additionality.”

### Practical implementation — data, methods, and prioritization
- Suitable data are key; administrative taxpayer data are often the most comprehensive but may lack detail on targeted outcomes.
- Sufficient lead time is required to secure access to selected data sources; reporting requirements may need to be expanded.
- Be selective in conducting in-depth analyses; prioritize TEs by economic or political importance and feasibility of rigorous causal evaluation.
- Leverage all available information sources, starting with administrative data and supplementing with targeted surveys, household budget or consumption surveys, sectoral surveys, and national accounts (I-O and S-U data).
- Where data are sourced from other agencies, establish data protocols to ensure timely, regular, and accurate provision. Legal safeguards may be required to preserve confidentiality.
- For large TEs, microsimulation, input-output (I-O), applied general equilibrium, or CGE models can be feasible for ex ante behavioral and spillover estimates.

### Institutionalization and partnerships
- TE evaluations often require coordination between the Ministry of Finance and other public institutions (Auditor General, line ministries, fiscal councils).
- Centralized oversight under the Ministry of Finance or strong involvement by its Tax Policy Unit is recommended to ensure balanced, objective evaluation and to feed back into tax design.
- External partnerships (Germany, The Netherlands, UK examples) provide specialized knowledge and independence but may raise consistency, institutional memory, and data-access challenges.
- Reported outsourcing costs:
  - Specific TE evaluations in the UK: EUR 60,000–290,000.
  - Wider evaluation cycle in Germany across a broad range of TEs: ~EUR 300,000.

### Returns to transparency
- Publishing TE cost reports is common; the level of detail varies across jurisdictions.
- Some jurisdictions publish beneficiaries of specific TEs to increase transparency (example: Portugal discloses beneficiaries of corporate tax benefits exceeding EUR 1,000).
- Increasing availability of anonymized administrative data supports independent external research and evaluation.
- Commitments to publish commissioned independent reports unaltered contribute to credibility; companion statements can be published where disagreements exist.

### Evaluation process (ex post) — steps and purposes
- Step 1. Review legislative history, including ex ante evaluation
  - Understand how the incentive is meant to work, intended beneficiaries, and targeted outcomes.
- Step 2. Meet with stakeholders
  - Obtain perspectives relating to a guiding set of evaluation questions like those in Box 2 that cover such issues as:
    - How the incentive operates in practice, including desirable and unwanted outcomes
    - Related incentives for possible inclusion in a joint evaluation
    - Administrative and compliance costs
    - Potential ways to improve incentive design
- Step 3. Review literature
  - Inform the theory of change and gather evidence on outcomes of similar incentives in other jurisdictions; identify potential evaluation strategies.
- Step 4. Develop evaluation plan
  - Select qualitative and/or quantitative methods appropriate to desired depth; identify data sources; specify logistics (personnel, contracts, permissions, milestones, communication strategy).
- Step 5. Make data arrangements
  - Ensure data will be available in time to perform the evaluation.
- Step 6. Perform evaluation
  - Compare predicted social benefits and costs from the ex ante assessment with ex post results; assess whether social benefits exceed social costs; explore improvements to TE design.
- Step 7. Draft report
  - Document methodology and findings on relevance, effectiveness, efficiency, and equity; recommend whether TE should be continued and any design changes; provide rationale and assessment of evidence strength; identify improvements in data sources and methods for future evaluations.
- Step 8. Communicate findings and publish report
  - Inform stakeholders to enhance transparency, support decision-making, and inform public discourse.

### Key practical recommendations and observations
- Even comparatively simple qualitative and partial quantitative analyses are preferable to ceding the discussion of benefits to stakeholders.
- With limited resources, countries should initially focus on the most important TEs and gradually expand evaluation mandates.
- A core requirement of ex ante assessment should be determining information needs for future ex post evaluations; consider additional reporting requirements for beneficiaries at introduction where needed.
- Evaluation strategies for direct expenditures and TEs aimed at the same policy outcomes will often be similar, allowing synergies across public institutions.

*Source: Box 2. Sample Evaluation Questions — HOW TO EvALUATE TAX EXPENDITURES, Fiscal Affairs Department, International Monetary Fund | November 2022*

### References

### References

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- Redonda, Augustin, and Tom Neubig. 2018. „Assessing Tax Expenditure Reporting in G20 and OECD Economies.“ Discussion Note 2018/3, Council on Economic Policies.
- Redonda, Augustin, von Haldenwang, Christian and Flurium Aliu. 2022. “Global Tax Expenditures Database, Version 1.1.3.” Accessed on 01/10/2022.
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- Toder, Eric. 2000. “Tax Cuts or Spending—Does It Make a Difference?” The Urban Institute, Washington, DC. https://www.taxpolicycenter.org/publications/tax-cuts-or-spending-does-it-make-difference/full.
- U.S. Government Accountability Office (GAO). 2013. “Tax Expenditures: Background and Evaluation Criteria and Questions,” GAO-13-167SP. GAO, Washington, DC. https://www.gao.gov/products/gao-13-167sp.
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- Von Haldenwang, Christian, Agustin Redonda, and Flurim Aliu. 2021. “Shedding Light on Worldwide Tax Expenditures: GTED Flagship Report.” German Development Institute and the Council on Economic Policies. Bonn. https://gted.net/wp-content/uploads/2021/08/210820_GTED_FlagshipReport.pdf.

*NOTE 22/05 How to Evaluate Tax Expenditures — FISCAL AFFAIRS DEPARTMENT — International Monetary Fund | November 2022*

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_Source: https://www.imf.org/-/media/files/publications/howtonotes/2022/english/htnea2022005.pdf_