Measurement of tax expenditures in Latin America

Campos Vázquez, Raymundo Miguel

Documentos de proyectos e investigación

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Date

2022-12-01

Abstract

The tax system is one of the main instruments used by the State to finance the provision of public goods and services. In the tax system, there are preferential treatments that seek to promote economic activity or support certain sectors. The public revenues forgone by these preferential treatments are known as tax expenditures. The volume of tax expenditures in Latin America is considerable. On average, they were equivalent to 3.8% of GDP and accounted for 20.6% of tax revenues in 2020. Given the need to promote a transformative recovery and finance the implementation of the Sustainable Development Goals, methodologies for quantifying tax expenditures in order to assess their efficiency, effectiveness and equity must be improved. This paper analyses reports on tax expenditures in countries of the region in order to provide a guide for estimating their costs. Based on the best practices identified in these reports, it proposes a set of elements to be taken into account for estimating, analysing and reporting on tax expenditures, with emphasis on the features of the most complete reports.

Abstract

Summary .-- Introduction .-- I. Conceptual discussion .-- II. Detailed review of the Reports on Tax expenditures published in Latin American countries .-- III. Mexico’s experience with the analysis of the impact of tax expenditures on income tax and VAT .-- IV. Proposed elements to be included in a methodological guide for the estimation and analysis of tax expenditures based on best practices identified in Latin America .-- V. Recommendations for the improvement of the estimation and evaluation of tax expenditures to promote sustainable and inclusive development.