Hostname: page-component-669899f699-8p65j Total loading time: 0 Render date: 2025-05-04T12:15:42.143Z Has data issue: false hasContentIssue false
  • English
  • Français

Beyond the Budget: A Global Perspective on Social Spending through Tax Expenditures

Published online by Cambridge University Press:  07 November 2024

Flurim Aliu Open the ORCID record for Flurim Aliu [Opens in a new window]  and
Agustin Redonda
Flurim Aliu*
Affiliation:
Council on Economic Policies, Zurich, Switzerland
Agustin Redonda
Affiliation:
Council on Economic Policies, Zurich, Switzerland
*
Corresponding author: Flurim Aliu; Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper investigates the intricate interplay between tax expenditures (TEs) and social policy. Leveraging the Global Tax Expenditures Database (GTED), we carry out the first data-driven comparative assessment of direct spending and TEs for social welfare across countries to shed light on this often-overlooked aspect of fiscal policy. Our research reveals prevalent TE usage for social purposes and substantial costs in terms of revenue forgone worldwide, averaging over 1 per cent of Gross Domestic Product (GDP) and 6 per cent of tax revenue. Our analysis showcases varying strategies employed by countries, particularly emphasizing the reliance of high-income economies on TEs granted through personal income taxes, and low/middle-income countries predominantly using value-added tax-related TEs for social objectives. Our results also highlight the importance of functions such as housing in contributing significantly to social spending through TEs with the ratio tax expenditure/direct spending reaching roughly 365 per cent in the US and 203 per cent in France. Hence, our study underlines the necessity for meticulous evaluation and efficient design of TEs to better align TE regimes with governments social policy objectives as well as to minimise unintended social or economic consequences.

Keywords

Tax expendituresocial spendingdirect expenditurebenchmarking
Type
Article
Information
Social Policy and Society , First View , pp. 1 - 19
Copyright
© The Author(s), 2024. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Averett, S. L. and Wang, Y. (2015) ‘The Effects of the Earned Income Tax Credit on Children’s Health, Quality of Home Environment, and Non-Cognitive Skills’, IZA Discussion Papers 9173, Institute of Labor Economics (IZA).CrossRefGoogle Scholar
Avram, S. (2017) ‘Who benefits from the “hidden welfare state”? The distributional effects of personal income tax expenditures in six countries’, Journal of European Social Policy, 28, 3, 1–23.Google Scholar
Avram, S., Levy, H. and Sutherland, H. (2014) ‘Income redistribution in the European Union’, IZA Journal of European Labor Studies, 3, 1, 1–29. https://doi.org/10.1186/2193-9012-3-22 CrossRefGoogle Scholar
Barrios, S., Coda Moscarola, F., Figari, F., Gandullia, L. and Riscado, S. (2020) ‘The fiscal and equity impact of social tax expenditures in the EU’, Journal of European Social Policy, 30, 3, 355–369.CrossRefGoogle Scholar
Bastian, J. (2020) ‘The rise of working mothers and the 1975 earned income tax credit’, American Economic Journal: Economic Policy, 12, 3, 44–75.Google Scholar
Bastian, J. and Jones, M. (2018) ‘Do EITC expansions pay for themselves? Effects on tax revenue and government transfers’, Journal of Public Economics, 196, 104–121. https://doi.org/10.1016/j.jpubeco.2020.104355 Google Scholar
Bastian, J. and Michelmore, K. (2018) ‘The long-term impact of the earned income tax credit on children’s education and employment outcomes’, Journal of Labor Economics, 36, 4, 1127–1163.CrossRefGoogle Scholar
Begrotingsruimte, Studiegroep (2016) ‘Van saldosturing naar stabilisatie Rapport van de 15e Studiegroep Begrotingsruimte’. Rijksoverheid, Den Haag. https://archief.rijksbegroting.nl/system/files/9/15e-rapport-studiegroep-begrotingsruimte-van-saldosturing-naar-stabilisatie.pdf Google Scholar
Béland, D., Cantillon, B., Greve, B., Hick, R. and Moreira, A. (2024) ‘Introduction: comparing social policy responses to the cost-of-living crisis’, Social Policy and Society, 23 1, 141–148.CrossRefGoogle Scholar
Benitez, J. C., Mansour, M., Pecho, M. and Vellutini, C. (2023) ‘Building Tax Capacity in Developing Countries’, IMF Staff Discussion Note SDN/2023/006. International Monetary Fund, Washington, DC.CrossRefGoogle Scholar
Benzarti, Y. and Carloni, D. (2019) ‘Who really benefits from consumption tax cuts? Evidence from a large VAT reform in France’, American Economic Journal: Economic Policy, 11, 1, 38–63.Google Scholar
Boden, R. (2023) ‘Tories insist private schools need tax breaks – but take it from an expert, they’re raking it in’, The Guardian, https://www.theguardian.com/commentisfree/2023/oct/06/tories-private-schools-vat-tax-breaks-expert-labour-fair-sensible [accessed 05.02.2024].Google Scholar
Buhl, J. (2024) ‘Bipartisan CTC Framework Would Help Lowest Income Quintiles’, TPC TaxVox Blog, Tax Policy Center, https://www.taxpolicycenter.org/taxvox/bipartisan-ctc-framework-would-help-lowest-income-quintiles [accessed 05.02.2024].Google Scholar
Chetty, R., Friedman, J. N. and Rockoff, J. (2011) ‘New Evidence on the Long-Term Impacts of Tax Credits’, Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association, 104, 2011, 116–124. http://www.jstor.org/stable/prancotamamnta.104.116 Google Scholar
CIAT (2019) ‘Tax Expenditures in the CIAT member countries/2019’, CIAT WP-06-2019, Inter-American Center of Tax Administrations (CIAT). https://biblioteca.ciat.org/opac/book/5690 Google Scholar
Collins, M. (2020) ‘Private pensions and the gender distribution of fiscal welfare’, Social Policy and Society, 19, 3, 500–516.CrossRefGoogle Scholar
Collins, M. L and Hughes, G. (2017) ‘Supporting pension contributions through the tax system: outcomes, costs and examining reform’, The Economic and Social Review, 48, 4, 489–514. https://www.esr.ie/article/view/824 Google Scholar
Dahl, G. and Lochner, L. (2012) ‘The impact of family income on child achievement: evidence from the earned income tax credit’, American Economic Review, 102, 5, 1927–1956.CrossRefGoogle Scholar
Dahl, M., DeLeire, T. and Schwabish, J. (2009) ‘Stepping stone or dead end? The effect of the EITC on earnings growth’, National Tax Journal, 62, 2, 329–347.CrossRefGoogle Scholar
De la Feria, R. and Walpole, M. (2020) ‘The impact of public perceptions on general consumption taxes’, British Tax Review, 67, 5, 637–669.Google Scholar
Department of Finance Canada (2023) ’Report on Federal Tax Expenditures: Concepts, Estimates and Evaluations’, Department of Finance Canada. https://www.canada.ca/en/department-finance/services/publications/federal-tax-expenditures/2023.html [accessed 05.02.2024].Google Scholar
Ecalle, F. (2023) ‘Les dépenses fiscales de 2017 à 2023’, FIPECO Note d’analyse, https://fipeco.fr/commentaire/Les%20d%C3%A9penses%20fiscales%20de%202017%20%C3%A0%202023 (in French) [accessed 05.02.2024].Google Scholar
Eissa, N. and Liebman, J. (1996) ‘Labor supply response to the earned income tax Credit’, Quarterly Journal of Economics, 111, 2, 605–637.CrossRefGoogle Scholar
Ellis, C. and Faricy, C. (2021) ‘The Other Side if the Coin: Public Opinion toward Social Tax Expenditures’, New York: Russell Sage.CrossRefGoogle Scholar
Gentilini, U. (2022) ‘Cash Transfers in Pandemic Times: Evidence, Practices, and Implications from the Largest Scale Up in History’, Washington, DC : World Bank. http://hdl.handle.net/10986/37700 CrossRefGoogle Scholar
Greve, B. (1994) ‘The hidden welfare state: Tax expenditure and social policy’, Scandinavian Journal of Social Welfare, 3, 4, 203–211.CrossRefGoogle Scholar
Hemmerlé, Y., Castle, C., Sarcina, G., Sunel, E., d’Arcangelo, F. M., Kruse, T., Haugh, D., Pina, A. and Pisu, M. (2023), ‘Aiming better: Government support for households and firms during the energy crisis’, OECD Economic Policy Papers, No. 32, OECD Publishing, Paris. https://doi.org/10.1787/839e3ae1-en CrossRefGoogle Scholar
Hick, R. and Lanau, A. (2019) ‘Tax credits and in-work poverty in the UK: an analysis of income packages and anti-poverty performance’, Social Policy and Society, 18, 2, 219–236.CrossRefGoogle Scholar
House of Commons (2023a) ‘Tax Reliefs Twentieth Report of Session 2022–23’, UK House of Commons Treasury Committee. https://committees.parliament.uk/publications/41067/documents/200054/default/ Google Scholar
House of Commons (2023b) ‘Tax Reliefs: Government Response to the Committee’s Twentieth Report’, UK House of Commons Treasury Committee. https://www.taxexpenditures.org/wp-content/uploads/2023/10/Tax-Reliefs-UK-Report.pdf Google Scholar
Howard, C. (1997) ‘The Hidden Welfare State: Tax Expenditures and Social Policy in the United States’, Princeton, NJ: Princeton University Press.Google Scholar
Hoynes, H., Miller, D. and Simon, D. (2015) ‘Income, the earned income tax credit, and infant health’, American Economic Journal: Economic Policy, 7, 1, 172–211.Google Scholar
Hoynes, H. and Patel, A, (2015) ‘Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income’, NBER Working Papers 21340, National Bureau of Economic Research, Inc.CrossRefGoogle Scholar
Manoli, D. and Turner, N. (2018) ‘Cash-on-hand and college enrollment: evidence from population tax data and the earned income tax credit’, American Economic Journal: Economic Policy, 10, 2, 242–271.Google Scholar
MECON (2022) ‘Informe Sobre Gastos Tributarios: Estimación para los años 2021-2023’, Ministerio de Economía de la Nación Argentina. https://www.argentina.gob.ar/sites/default/files/informe_sobre_gastos_tributarios._anos_2021-2023.pdf (in Spanish) [accessed 05.02.2024].Google Scholar
Meyer, B. and Rosenbaum, D. (2001) ‘Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers’, Quarterly Journal of Economics, 116, 3, 1063–1114.CrossRefGoogle Scholar
Mitchell, D. (1990) ‘Comparing Income Transfer Systems: Is Australia the Poor Relation’, LIS Working Paper Series, No. 56, Luxembourg Income Study (LIS), Luxembourg.Google Scholar
Morel, N., Touzet, C. and Zemmour, M. (2018) ’Fiscal welfare in Europe: Why should we care and what do we know so far?’, Journal of European Social Policy, 28, 5, 549–560.CrossRefGoogle Scholar
Morel, N., Touzet, C. and Zemmour, M. (2019) ‘From the hidden welfare state to the hidden part of welfare state reform: analyzing the uses and effects of fiscal welfare in France’, Social Policy & Administration, 53, 1, 34–48.CrossRefGoogle Scholar
OECD (2010) ‘Tax Expenditures in OECD Countries’, Paris: Organisation for Economic Co-operation and Development (OECD)..Google Scholar
OECD (2011) ‘Classification of the Functions of Government (COFOG)’, Paris: Organisation for Economic Co-operation and Development (OECD).. https://www.oecd.org/gov/48250728.pdf Google Scholar
OECD (2015) ‘OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015’, Paris: Organisation for Economic Co-operation and Development (OECD)..Google Scholar
OECD (2020) ‘The effects of R&D tax incentives and their role in the innovation policy mix: Findings from the OECD microBeRD project, 2016-19’, OECD Science, Technology and Industry Policy Papers, No. 92, OECD Publishing, Paris. https://doi.org/10.1787/65234003-en CrossRefGoogle Scholar
OECD (2023) ‘Social Expenditure Database (SOCX) Update 2023’. Organisation for Economic Co-operation and Development (OECD), http://www.oecd.org/social/expenditure.htm.Google Scholar
Prasad, M. (2011), ‘Tax “expenditures” and welfare states: a critique’, Journal of Policy History, 23, 2, 251–266.CrossRefGoogle Scholar
Redonda, A., Millan, L., von Haldenwang, C. and Aliu, F. (2023a) ‘Global Tax Expenditures Transparency Index: Companion Paper’, German Institute of Development and Sustainability (IDOS). https://doi.org/10.23661/r3.2023 CrossRefGoogle Scholar
Redonda, A. and Neubig, T. (2018) ‘Assessing Tax Expenditure Reporting in G20 and OECD Economies’, CEP Discussion Note 2018/3, Council on Economic Policies, https://www.cepweb.org/wp-content/uploads/2018/11/Redonda-and-Neubig-2018.-Assessing-Tax-Expenditure-Reporting.pdf Google Scholar
Redonda, A., von Haldenwang, C. and Aliu, F. (2023b) ‘Global Tax Expenditures Database (GTED)’, [dataset]. https://doi.org/10.5281/zenodo.8337951 CrossRefGoogle Scholar
Sinfield, A. (2023) ‘Fiscal welfare and tax expenditures’, in Lymer, A., May, M. and sinfield, A. (eds). ‘Taxation and Social Policy’, 1st ed. Bristol University Press, 46–66.CrossRefGoogle Scholar
Sinfield, A. (2007) ‘Tax welfare’, in Powell, Martin, (ed). ‘Understanding the Mixed Economy of Welfare’, 1st ed. Bristol University Press, 129–148.CrossRefGoogle Scholar
Sommer, K. and Sullivan, P. (2018) ‘Implications of US Tax Policy for House Prices, Rents, and Homeownership’, American Economic Review 2018, 108, 2, 241–274.CrossRefGoogle Scholar
Spies-Butcher, B. and Stebbing, A. (2010) ‘Universal welfare by “other means”? Social tax expenditures and the Australian dual welfare state’, Journal of Social Policy, 39, 4, 585–606.Google Scholar
Surrey, S. (1973) ‘Pathways to Tax Reform: The Concept of Tax Expenditures’, Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Surrey, S. and McDaniel, P. (1976) ‘The tax expenditure concept and the budget reform act of 1974’, Boston College Law Review, 17, 5, 679–737.Google Scholar
Surrey, S. and McDaniel, P. (1979) ‘The tax expenditure concept: current developments and emerging issues’, Boston College Law Review, 202, 225–286.Google Scholar
Titmuss, R. (1958) ‘The social divisions of welfare: some reflections on the search for equity’, in Essays on “the Welfare State”, London: Allen & Unwin, 34–55.Google Scholar
Toder, E. (1998) ‘The Changing Composition of Tax Incentives: 1980-1999’, in Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association. National Tax Association, 411–418.Google Scholar
UN (2000) ‘Classifications of Expenditure According to Purpose: Classification of the Functions of Government’, United Nations, New York.Google Scholar
van Financiën, Ministerie (2018) ‘Overzicht van het budgettaire belang van fiscale regelingen’ Miljoenennota 2018, https://www.rijksfinancien.nl/miljoenennota/2018/bijlage/d17e20421 (in Dutch) [accessed 05.02.2024].Google Scholar
von Haldenwang, C., Redonda, A. and Aliu, F. (2023) ‘Tax Expenditures in an Era of Transformative Change: The GTED Flagship Report 2023’, German Institute of Development and Sustainability. https://doi.org/10.23661/r2.2023 CrossRefGoogle Scholar