IDEAS home Printed from https://ideas.repec.org/a/euf/qreuro/0243-01.html

Tax Expenditures In The Eu: Recent Trends And New Policy Challenges

Author

Listed:
  • A. Turrini
  • J. Guigue
  • A. Kiss
  • F. Lanterna
  • A. Leodolte
  • C. Leventi
  • F. Neher
  • A. Papini
  • F. Picos
  • M. Ricci
  • K. Van Herck

Abstract

Tax expenditures are tax relief measures targeted at socially desirable activities or specific groups of taxpayers. Like spending programmes, tax expenditures can be used for allocative or redistributive purposes. At the same time, tax expenditures can make the tax system more complex, less transparent, may have adverse distributional impacts, and they can result in substantial revenue loss. Using the tax-benefit microsimulation model Euromod this chapter simulates the fiscal and distributional impacts of two specific sets of tax expenditures: those in personal income taxation (PIT) and reduced value-added tax (VAT) rates. The tax expenditures in PIT that are covered by this chapter are estimated to represent about 17% of tax revenues from PIT in the euro area (corresponding to about 1.4% of GDP on average). Reduced VAT rates represent about 16% of VAT paid by households in the euro area (corresponding to about 1.1% of GDP on average). Eliminating or reducing ineffective (or cost-ineffective) tax expenditures can create crucial fiscal space that allows for stronger fiscal consolidation, a revenue-neutral reduction in statutory tax rates, or growth-friendly tax shifts.

Suggested Citation

  • A. Turrini & J. Guigue & A. Kiss & F. Lanterna & A. Leodolte & C. Leventi & F. Neher & A. Papini & F. Picos & M. Ricci & K. Van Herck, 2025. "Tax Expenditures In The Eu: Recent Trends And New Policy Challenges," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 24(3), pages 7-17, November.
    • Handle: RePEc:euf:qreuro:0243-01
    as

    Download full text from publisher

    File URL: https://economy-finance.ec.europa.eu/document/download/66b8501b-4d40-4c73-b62f-2e58c589eac8_en?filename=ip326_en.pdf#page=7
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    2. Ben Zeev, Nadav & Pappa, Evi, 2015. "Multipliers of unexpected increases in defense spending: An empirical investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 205-226.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Esteban García-Miralles & Maximilian Freier & Sara Riscado & Chrysa Leventi & Alberto Mazzon & Glenn Abela & Laura Boyd & Baiba Brusbarder & Marion Cochard & David Cornille & Emanuele Dicarlo & Ian De, 2025. "Fiscal drag in theory and in practice: A European perspective," Working Papers 2545, Banco de España.
    3. Christl, Michael & Berdeal, Silvia Navarro, 2026. "Tax expenditures and redistribution - The case of Portugal," GLO Discussion Paper Series 1705, Global Labor Organization (GLO).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Panagiotis Th. Konstantinou & Andromachi Partheniou & Athanasios Tagkalakis, 2025. "A Functional Classification Analysis of Government Spending Multipliers," Open Economies Review, Springer, vol. 36(4), pages 1157-1192, September.
    2. S. Calò & R. Kramer & F. Tomasone, 2025. "The Impact Of Public Defence R&D Spending On Private R&D Spending," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 24(3), pages 31-40, November.
    3. F. Bloise & C. Cantore & M. Licchetta & G. Ragusa, 2025. "Monetary Policy And Labour Supply In The Euro Area," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 24(3), pages 19-30, November.
    4. José Félix Sanz Sanz, 2026. "Reflexiones sobre el sistema fiscal español: notas para un debate necesario," Studies on the Spanish Economy eee2026-01, FEDEA.
    5. Esa Mangeloja, 2004. "Interrelationship of economic growth and regional religious properties," ERSA conference papers ersa04p94, European Regional Science Association.
    6. Pierre‐Richard Agénor, 2009. "Infrastructure Investment and Maintenance Expenditure: Optimal Allocation Rules in a Growing Economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(2), pages 233-250, April.
    7. Arcalean, Calin & Glomm, Gerhard & Schiopu, Ioana, 2012. "Growth effects of spatial redistribution policies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 988-1008.
    8. Iamsiraroj, Sasi, 2016. "The foreign direct investment–economic growth nexus," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 116-133.
    9. David Owyong & Shandre Thangavelu, 2001. "An empirical study on public capital spillovers from the USA to Canada," Applied Economics, Taylor & Francis Journals, vol. 33(11), pages 1493-1499.
    10. Jing Xing, 2011. "Does tax structure affect economic growth? Empirical evidence from OECD countries," Working Papers 1120, Oxford University Centre for Business Taxation.
    11. Ingrid Ott & Susanne Soretz, 2006. "Governmental activity, integration, and agglomeration," Working Paper Series in Economics 57, University of Lüneburg, Institute of Economics.
    12. Schreiner, Lena & Madlener, Reinhard, 2022. "Investing in power grid infrastructure as a flexibility option: A DSGE assessment for Germany," Energy Economics, Elsevier, vol. 107(C).
    13. Li, Shiyu & Lin, Shuanglin, 2011. "Is there any gain from social security privatization?," China Economic Review, Elsevier, vol. 22(3), pages 278-289, September.
    14. Pierre‐Richard Agénor, 2004. "Macroeconomic Adjustment and the Poor: Analytical Issues and Cross‐Country Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 18(3), pages 351-408, July.
    15. van de Klundert, T.C.M.J. & Smulders, J.A., 1991. "Reconstructing growth theory : A survey," Other publications TiSEM 19355c51-17eb-4d5d-aa66-b, Tilburg University, School of Economics and Management.
    16. Canavire-Bacarreza, Gustavo & Martínez-Vázquez, Jorge & Vulovic, Violeta, 2013. "Taxation and Economic Growth in Latin America," IDB Publications (Working Papers) 4583, Inter-American Development Bank.
    17. van Schaaijk, Marein & van Tuijl, Bas, 2003. "Export Growth and Poverty," Conference papers 331088, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    18. Blomberg, S. Brock & Hess, Gregory D., 2003. "Is the political business cycle for real?," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1091-1121, May.
    19. Arsène Aurelien NJAMEN KENGDO & Luc NEMBOT NDEFFO & Désiré AVOM, 2020. "The Effect of Foreign Debt on Economic Growth in Sub-Saharan African Sub-Regions," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 109-114.
    20. Carine Nourry, 2012. "Dasgupta, D.: Modern growth theory," Journal of Economics, Springer, vol. 105(1), pages 97-100, January.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:qreuro:0243-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECFIN INFO (email available below). General contact details of provider: https://edirc.repec.org/data/dg2ecbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.