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Tax Expenditures and Sustainability: Analysis and Reform Recommendations

This ongoing project aims to build a coalition of think tanks and research institutions to collect, calculate, and analyze data on tax expenditures (TEs) in the G20 countries. The objective is to identify policy reform recommendations to reduce regressive and environmentally harmful TEs and share successful TE reform examples.

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Tax Expenditures and Sustainability: Analysis and Reform Recommendations

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  1. Tax Expenditures and SustainabilityAgustin Redondaar@cepweb.orgInGRID Summer SchoolEssex, UK18-20 May 2016

  2. Objective • Build a coalition of think tanks and research institutions on the topic of tax expenditures (TEs) and sustainability to: • jointly collect, calculate and publish data on TEs in the G20; • analyze their economic, social and environmental effects; • identify recommendations for policy reform to reduce regressive and environmentally harmful TEs and share examples of successful TE reforms. • Not a one-off project. • We would rather explore the possibility to establish this as an ongoing project with periodic updates

  3. Data • Main output: Matrix: rows=countries and columns=TEs. • Each cell accounts for the cost of a specific TE in a given country. • First-best: Cells are computed based on a worldwide-accepted definition of a standard benchmark.This would allow: • to enhance international comparability; • the adding up of national total amounts of support as well as disaggregated figures (e.g. by tax base or policy objective); • to define best practices and create rankings. • Second-best: Similar matrix, but cells are computed based on each country’s benchmark.

  4. Economic Analysis • TEobjectives: support variety of economic, social and environmental goals such as promoting job creation, boosting innovation, reducing inequality and fostering use of renewable energy, among others. • Nevertheless, many TEs raise significant concerns: • Cost: > 117 GBP bn in UK in 2015, > 38% of total income tax revenue in US in 2014, roughly 8% of GDP in Italy and Australia in 2010. • Transparency: In Australia, estimates for 48% of all TEs (140/290) were not available in 2015 (237/470 in France). • Efficiency: Mortgage interest deductions (MID), VAT reduced rates, Patent boxes. • Negative side effects: Income and wealth distribution (MID), environment (fossil fuel subsidies).

  5. Policy recommendations • CEP fiscal program aims to design and promote fiscal policies and tax reforms to increase alignment with economic, social and environmental objectives. • This project should use the data and economic analysis discussed before to, • identify recommendations for policy reform to reduce regressive and environmentally harmful Tes; • share examples of successful TE reforms.

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