Books

The Global Tax Expenditures Transparency Index: Companion Paper

Redonda, Agustin / Lucas Millan / Christian von Haldenwang / Sofia Berg / Flurim Aliu
Books (2024)

Bonn: German Institute of Development and Sustainability (IDOS)

ISBN: 978-3-96021-242-3
DOI: https://doi.org/10.23661/r2.2024

Revised version, December 2024

Tax expenditures (TEs) are benefits granted through the tax system that lower government revenue and the tax liability of beneficiaries. Governments worldwide use TEs to pursue different policy goals such as attracting investment, boosting innovation and mitigating inequality. At the same time, TEs are costly: according to the Global Tax Expenditures Database (GTED), the worldwide average over the 1990-2022 period is 4.1 percent of GDP and 24.5 percent of tax revenue (Redonda et al., 2024). When ill designed, they can be ineffective in reaching their stated goals. They can also be highly distortive and trigger negative externalities.

Yet, despite the fact that TEs have similar effects on public budgets as direct spending programmes, the lack of transparency in the TE field is striking: only 109 out of 218 jurisdictions have reported on TEs at least once since 1990. In addition, the quality, regularity and scope of such reports are highly heterogeneous and, in many cases, do not allow to engage in meaningful discussions on the effectiveness and efficiency of TEs.

The Global Tax Expenditures Transparency Index (GTETI) is the first comparative assessment of TE reporting covering jurisdictions worldwide. It provides a systematic framework to rank jurisdictions according to the regularity, quality and scope of their TE reports, and seeks to increase transparency and accountability in the TE field.

This new version of the Companion Paper introduces the GTETI, outlines the updates made to the index since its launch in October 2023, and provides an in-depth explanation of its five dimensions and 25 indicators. It also discusses the rationale, scope, methodology and assumptions underpinning the GTETI assessment process. The Companion Paper explains the limitations and issues users should bear in mind when consulting the index, which is publicly available free of charge on the Tax Expenditures Lab website, www.taxexpenditures.org.

The normative approach behind the GTETI is illustrated in Appendix 1, where a detailed description of an ideal TE report is provided. Appendix 2 contains the GTETI scoring sheet with a list of all indicators and the required supporting documentation.