The politics of tax expenditures

Tax expenditures are departures from the normal tax structure, designed to favour a particular activity, or group of taxpayers. They are a central, yet all too often hidden element of public revenue systems. This ambiguity is their key political feature: with real costs and benefits often unknown or deliberately kept out of public debate, they offer political leeway for governments to implement distributive policies at home, find competitive solutions to globalization threats from abroad, or manage situations of crisis and political stress. The chapter provides a literature review over the politics of tax expenditures and their relevance for tax systems worldwide. It shows that tax expenditures are a key issue for the politics of taxation debate, both in terms of size and significance of impacts, even though empirical evidence on tax expenditures is still limited. It is impossible to understand the political economy of taxation without accounting for tax expenditures.