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Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform

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  • Leonard E. Burman
  • Marvin Phaup

Abstract

One possible explanation for the difficulty in controlling the budget is that a major component of spending --tax expenditures--receives privileged status. It is treated as tax cuts rather than spending. This paper explores the implications of that classification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The paper then analyzes alternative budgeting approaches that would explicitly incorporate and measure tax expenditures. It concludes by analyzing ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures.

Suggested Citation

  • Leonard E. Burman & Marvin Phaup, 2011. "Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform," NBER Working Papers 17268, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17268
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    References listed on IDEAS

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    1. Marvin Phaup & Charlotte Kirschner, 2010. "Budgeting for disasters: Focusing on the good times," OECD Journal on Budgeting, OECD Publishing, vol. 10(1), pages 1-24.
    2. Deborah Lucas, 2010. "Measuring and Managing Federal Financial Risk," NBER Books, National Bureau of Economic Research, Inc, number luca07-1, March.
    3. Leonard E. Burman & Christopher Geissler & Eric J. Toder, 2008. "How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them?," American Economic Review, American Economic Association, vol. 98(2), pages 79-83, May.
    4. Sijbren Cnossen & Hans-Werner Sinn (ed.), 2003. "Public Finance and Public Policy in the New Century," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033046, December.
    5. Davie, Bruce F., 1994. "Tax Expenditures in the Federal Excise Tax System," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(1), pages 39-62, March.
    6. Lucas, Deborah (ed.), 2010. "Measuring and Managing Federal Financial Risk," National Bureau of Economic Research Books, University of Chicago Press, number 9780226496580, December.
    7. David Bradford, 2001. "Reforming Budgetary Language," CESifo Working Paper Series 619, CESifo.
    8. Kleinbard, Edward D., 2010. "Tax Expenditure Framework Legislation," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(2), pages 353-381, June.
    9. Burman, Leonard E. & Rohaly, Jeffrey & Rosenberg, Joseph & Lim, Katherine C., 2010. "Catastrophic Budget Failure," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(3), pages 561-583, September.
    10. Davie, Bruce F., 1994. "Tax Expenditures in the Federal Excise Tax System," National Tax Journal, National Tax Association, vol. 47(1), pages 39-62, March.
    11. William G. Gale & Peter R. Orszag, 2004. "Budget Deficits, National Saving, and Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 101-210.
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    Citations

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    Cited by:

    1. Salvador Barrios & Serena Fatica & Diego Martinez-Lopez & Gilles Mourre, 2018. "The Fiscal Effects of Work-related Tax Expenditures in Europe," Public Finance Review, , vol. 46(5), pages 793-820, September.
    2. Olga V. Bogacheva & Tatiana V. Fokina, 2017. "Evaluation of Social Tax Expenditures Efficiency in OECD Countries," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 3, pages 22-36, June.
    3. repec:hal:spmain:info:hdl:2441/6o65lgig8d0qcro9oj599gl90 is not listed on IDEAS
    4. Michael Zemmour, 2013. "Les dépenses socio-fiscales ayant trait à la protection sociale : état des lieux," Sciences Po publications info:hdl:2441/6o65lgig8d0, Sciences Po.
    5. Ryta I. Dziemianowicz & Adam Wyszkowski & Renata Budlewska, 2014. "Tax expenditures jako ukryta forma wydatków publicznych," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 35-62.
    6. -, 2019. "Fiscal Panorama of Latin America and the Caribbean 2019: Tax policies for resource mobilization in the framework of the 2030 Agenda for Sustainable Development," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 44517 edited by Eclac.
    7. William B. P. Robson & Alexandre Laurin, 2017. "Hidden Spending: The Fiscal Impact of Federal Tax Concessions," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 469, February.
    8. Matt Guardino & Suzanne Mettler, 2020. "Revealing the “Hidden welfare state†: How policy information influences public attitudes about tax expenditures," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(1).
    9. Tatyana V. Tischenko, 2023. "International Practice of Tax Expense Identification," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 3, pages 91-103, June.
    10. Alex Laurin & William Robson, 2013. "Prudence and Opportunity: A Shadow Federal Budget for 2013," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 375, March.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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