Assessing the Aggregate Budgetary Effect of Tax Support: Evidence from the Information Technology Sector

This article develops an approach to assessing and forecasting the budgetary effects of tax support measures, using the information technology sector as an empirical example. Authors show that an assessment based mainly on forgone budget revenues does not fully reflect the consequences of such measures, since it leaves out changes in the tax base as well as indirect and induced effects arising through output, employment, payroll, and demand. The paper proposes an input–output-based approach to estimating the aggregate budgetary effect, linking the budgetary cost of a measure, the direct economic effect it generates, and the resulting change in tax revenues. As an empirical illustration, the study considers a set of support measures applied to the information technology sector, including tax, financial, and selected labor-related instruments. For the selected period, the direct and aggregate tax effects are compared using an intersectoral multiplier of tax revenue growth. The results show that accounting for intersectoral linkages makes it possible to obtain a more complete estimate of additional tax revenues associated with support measures than calculations limited to the direct effect for their immediate recipients. The paper also identifies the differences between the proposed approach and existing official methodologies for evaluating tax expenditures. It concludes that the input–output approach improves budgetary analysis and expands the scope for forecasting budget revenues.