How to Evaluate Tax Expenditures
IMF How To Notes, November 30, 2022
Source details
- Canonical URL
- How to Evaluate Tax Expenditures
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Bibliographic details
- Authors: Sebastian Beer, Dora Benedek, Brian Erard, Jan Loeprick
- Published: November 30, 2022
- Series: IMF How To Notes
- DOI: https://doi.org/10.5089/9798400221507.061
Overview
- Governments use tax expenditures (TEs) to provide financial support or benefits to taxpayers.
- The budgetary impact of TEs can be similar to that of direct outlays: after the support is provided, less money is available to fund other government priorities.
- Systematic evaluations are needed to guide informed decision-making and to avoid a situation where the narrative on the benefits of TEs is primarily driven by profiting stakeholders.
- By TE “evaluation,” this note refers to 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.
- Evaluation processes can be tailored to different levels of data availability and analytical capacity.
- An evaluation should focus on the policy objective of a TE and whether it effectively and efficiently contributes to that policy objective.
- Although important lessons can be learned from country practices in implementing increasingly ambitious evaluation processes, there is no single best-practice approach to replicate.
Key findings and emphases
- Tax expenditures can have budgetary effects comparable to direct spending and therefore warrant the same level of scrutiny.
- Evaluations should gather and analyze both quantitative and qualitative information on TE effects.
- The primary focus of an evaluation should be whether a TE contributes effectively and efficiently to its stated policy objective.
- Evaluation processes must be adaptable to differing data availability and analytical capacity across countries.
- Reliance on narratives promoted by stakeholders can bias decisions if systematic evaluation is absent.
Guidance on evaluation approach
- Define the policy objective of the TE clearly as the starting point for evaluation.
- Collect available quantitative and qualitative evidence on whether the TE achieves the stated objective.
- Assess both effectiveness (does it achieve the objective) and efficiency (is it the best use of resources compared with alternatives).
- Tailor the depth and methods of evaluation to the country’s data availability and analytical capacity.
- Use country practices as informative examples but recognize that “there is no single best-practice approach to replicate.”
Publication and metadata
- Authors: Sebastian Beer, Dora Benedek, Brian Erard, Jan Loeprick
- Date: November 30, 2022
- Series: How-To Note No 2022/005
- Issue: 005
- Volume: 2022
- Pages: 19
- DOI: https://doi.org/10.5089/9798400221507.061
- ISBN: 9798400221507
- ISSN: 2522-7912
- Subjects: Expenditure, Public financial management (PFM), Revenue administration, Tax policy, Taxes
- Keywords: Compliance costs, cost-benefit assessment, East Asia, Global, post evaluation, public policy evaluation, publication order, publication service, sample evaluation, tax expenditures, Tax incentives, title page, Value-added tax
How to Evaluate Tax Expenditures — IMF How To Notes (Sebastian Beer, Dora Benedek, Brian Erard, Jan Loeprick), November 30, 2022; How-To Note No 2022/005; DOI: https://doi.org/10.5089/9798400221507.061
Content in this bundle
- How to Evaluate Tax Expenditures. How to notes, 22/05. November 2022