Tax expenditures in direct taxation in EU Member States

Abstract:
Tax expenditures allow certain groups of taxpayers to reduce their tax burden and, therefore, lead to revenue losses for the government. EU Member States make ample use of tax expenditures with a wide variety of aims including employment creation, innovation, education, entrepreneurship, home ownership and income redistribution. While some well-designed tax expenditures can enhance positive spill overs and welfare, it is important to ensure that tax expenditures do not cause economic distortions or lead to unfair outcome and that they are cost-efficient means of achieving economic and social policy goals. Against the background of a low growth environment and constrained public finances, reforming tax expenditures may offer a promising avenue to raise revenue and, at the same time, improve the efficiency of the tax systems.
This paper provides an overview of major categories of tax expenditures in direct taxation, highlighting possible risks and challenges important for Member States to consider when assessing or considering policies in the area.

European Commission: DG Economic and Financial Affairs: European Economy: Occasional Paper No. 207, December 2014: Tax expenditures in direct taxation in EU Member States http://ec.europa.eu/economy_finance/publications/occasional_paper/2014/op207_en.htm

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