Tax Expenditure and the Treatment of Tax Incentives for Investment

Economics Discussion Papers, No 2018-57, Kiel Institute for the World Economy

12 Pages Posted: 29 Aug 2021

See all articles by Agustin Redonda

Agustin Redonda

Council on Economic Policies (CEP)

Santiago Díaz De Sarralde

Universidad Rey Juan Carlos

Mark Hallerberg

Hertie School of Governance

Lise Johnson

Columbia University - Columbia Center on Sustainable Investment

Ariel Melamud

Asociación Argentina de Presupuesto y Administración Financiera Pública

Ricardo Rozemberg

iDeAS, Centro de Investigación sobre Desarrollo Económico de América del Sur

Jakob Schwab

Goethe University Frankfurt - Graduate School of Economics, Finance and Management (GSEFM); Johannes Gutenberg University Mainz

Christian von Haldenwang

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Date Written: July 19, 2018

Abstract

Governments use tax expenditures to boost investment, innovation and employment. However, these schemes are largely opaque, costly and often ineffective in reaching their stated goals. They also frequently trigger unwanted side effects. In order to improve the performance of these tools, the authors present three concrete policy proposals: First, governments should increase transparency on tax benefits. G20 members should take the lead on this with frequent and comprehensive tax expenditure reports. Second, G20 governments should improve the design of tax incentives with the aim of minimizing the generation of windfall profits and negative spillover effects within and across (in particular, on poorer) countries. Third, governments should phase out tax expenditures that are environmentally harmful, including tax incentives for fossil fuels and other schemes that promote an unsustainable use of natural resources.

Keywords: Tax expenditure, tax competition, investment, fossil fuel subsidies

JEL Classification: H2, H87, N4

Suggested Citation

Redonda, Agustin and De Sarralde, Santiago Díaz and Hallerberg, Mark and Johnson, Lise and Melamud, Ariel and Rozemberg, Ricardo and Schwab, Jakob and von Haldenwang, Christian, Tax Expenditure and the Treatment of Tax Incentives for Investment (July 19, 2018). Economics Discussion Papers, No 2018-57, Kiel Institute for the World Economy, Available at SSRN: https://ssrn.com/abstract=3894710

Agustin Redonda (Contact Author)

Council on Economic Policies (CEP) ( email )

Zürich, 8008
Switzerland

Santiago Díaz De Sarralde

Universidad Rey Juan Carlos

Calle Tulipán, s/n
Madrid, Móstoles 28230
Spain

Mark Hallerberg

Hertie School of Governance ( email )

Friedrichstr. 180
Berlin, Berlin 10117
Germany

Lise Johnson

Columbia University - Columbia Center on Sustainable Investment

William C. Warren Hall, 1st floor
410 West 116th Street
New York, NY 10027
United States

Ariel Melamud

Asociación Argentina de Presupuesto y Administración Financiera Pública ( email )

Av. Belgrano 1370
5th floor (1093)
Buenos Aires
Argentina

Ricardo Rozemberg

iDeAS, Centro de Investigación sobre Desarrollo Económico de América del Sur

Jakob Schwab

Goethe University Frankfurt - Graduate School of Economics, Finance and Management (GSEFM) ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Johannes Gutenberg University Mainz ( email )

Saarstrasse 21
Mainz, D-55099
Germany

Christian Von Haldenwang

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 6
Bonn, 53113
Germany

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