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Tax expenditures and redistribution - The case of Portugal

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This paper assesses the fiscal and distributional effects of personal income tax expenditures in Portugal using EUROMOD microsimulation and 2022 EU-SILC microdata. We compare the 2023 tax-benefit system with a counterfactual scenario in which each tax expenditure category is removed individually to estimate first-round fiscal, distributional and cost-efficiency impacts. We find that tax expenditures account for almost 40% of personal income tax revenues and predominantly benefit middle-income households, with substantial variation in redistributive effectiveness across instruments. Work-related and pension-related tax expenditures are regressive, increasing inequality relative to the baseline, while family, health, housing and education-related provisions are broadly neutral. The Net income guarantee (‘Mínimo de Existência’) tax allowance, stands out as the only progressive instrument and is the most cost-efficient tax expenditure on both inequality and poverty dimensions. These findings suggest that reallocating fiscal resources from broad-based, regressive provisions towards targeted instruments such as the ‘Mínimo de Existência’ could yield greater redistributive returns.

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  • Christl Michael & Navarro Berdeal Silvia, 2026. "Tax expenditures and redistribution - The case of Portugal," JRC Working Papers on Taxation & Structural Reforms 2026-05, Joint Research Centre.
    • Handle: RePEc:ipt:taxref:202605
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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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