One of the three issues our research has identified that characterizes the management of tax expenditures in Latin America is decision-making processes that are opaque, closed to a limited number of actors, and not linked to the annual budget process. In this brief, we look at the ways in which governments decide upon and manage tax expenditures and the degree to which current arrangements allow for their effective use as fiscal policy instruments.
This publication is part of the LATERAL project, which has brought together a group of civil society organizations from across Latin America and the Caribbean to better understand and influence the ways in which governments use—or abuse—tax expenditures as tools for fiscal policy and economic development.
Across Latin America, tax expenditures are reducing government revenues by between 10 and 20 percent, but adequate information on their objectives, beneficiaries, and ultimate impact is lacking. This brief looks at some more general data on transparency practices on tax expenditures and then presents the results of a mini-survey for Latin America to facilitate cross-country comparisons and encourage debate on areas in which governments need to improve on their tax expenditure transparency practices.
January 2019 | by Paolo de Renzio, International Budget Partnership
Tax expenditures — provisions that reduce the amount of tax that is paid by providing special treatment to a particular class of individual, industry, or activity — have been on the rise in Latin America and represent a reduction of between 10 and 20 percent in total revenues collected by governments, with questionable impact. While most Latin American countries publish a yearly report on tax expenditures, the information is often insufficient to allow for proper assessment and debate. And because tax expenditures are usually not negotiated as part of the regular budget process, decision-making around their design and approval is mostly opaque and prone to lobbying by powerful interest groups.
The available evidence on the impact of tax expenditures shows that they tend to generate economic distortions and worsen inequality. Thus, civil society groups are increasingly becoming interested in engaging with tax expenditures to hold governments accountable for this important and opaque area of public finance. The Latin America Tax Expenditure Research, Advocacy, and Learning (LATERAL) project, a collaborative research, capacity-building, and advocacy initiative spearheaded by the International Budget Partnership and ten Latin American civil society organizations, began formally examining these issues in 2016.
This paper (available in English and Spanish) summarizes the findings of the two main components of the LATERAL project: 1.) our research examining tax policy and tax expenditures in Latin America and the role that civil society can play in related debates; and 2.) country-level research on tax policy and tax expenditures in Latin America carried out by civil society partners.
June 2018 | by Jean Ross, International Budget Partnership Consultant
Tax expenditures are provisions that reduce the amount of revenue that is collected by providing special treatment to a particular class of individual, type of income, industry, or activity. Economists call this a “tax expenditure” to make the point that the economic impact of these provisions is conceptually equivalent to that of direct government spending.
Tax expenditures can be an appropriate tool when they are used to provide broad-based benefits, but often they are used too frequently, are used ineffectively, or are used for purposes where direct government spending would be more appropriate. In many countries, tax expenditures significantly reduce revenue collections and frequently increase inequality by providing disproportionate benefits to high-income taxpayers. Because of these impacts, civil society organizations across the globe are increasingly scrutinizing tax expenditures. However, the information they need for a comprehensive analysis is often not available or is incomplete, complicating efforts to analyze country policies and identify opportunities for reform.
This paper (available in English and Spanish) provides a guide to assessing a country’s overall framework for establishing, reporting on, and evaluating tax expenditures using criteria that characterizes a good tax system: transparency, accountability, equity, efficiency, and adequacy.
June 2018 | by Jean Ross, International Budget Partnership Consultant
Tax expenditures are provisions that reduce the amount of tax that is paid by providing special treatment to a particular class of individual, industry, or activity. Economists call this a “tax expenditure” to make the point that the economic impact of these provisions is conceptually equivalent to that of direct government spending. Tax expenditures are important because they:
are typically subject to less public oversight and are less transparent than “on budget” spending;
reduce the revenues available for public spending; and
can make the tax system less equitable by providing benefits to the wealthy and forcing governments to rely on indirect taxes that are disproportionately paid by low- and middle-income households to replace the revenues lost through the tax expenditure.
This guide (available in English and Spanish) provides an introduction to approaches that can be used to develop a research and advocacy plan for those who are new to analyzing taxes and tax expenditures in Latin America. The guide focuses on how to define the problem you wish to research and sources of information that can be used to understand and develop possible solutions.
The Open Budgets Blog features content related to transparency, participation, and accountability in government budgeting; civil society budget analysis and advocacy; and public finance management.
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