Conference Agenda

This paper investigates the interplay between tax expenditures (TEs) and social policy. Leveraging the Global Tax Expenditures Database, we carry out the first data-driven cross-country assessment of direct spending and TEs for social welfare to shed light on this often-overlooked aspect of fiscal policy. Our research reveals prevalent TE usage for social purposes and substantial costs in terms of revenue forgone, averaging over 1 percent of GDP and 6 percent of tax revenue. Our analysis showcases varying strategies employed by countries, emphasizing the reliance of high-income economies on TEs granted through personal income taxes, and low/middle-income countries predominantly using value-added tax-related TEs for social objectives. Some functions contribute significantly to social spending through TEs, e.g. housing shows a tax expenditure/direct spending ratio reaching roughly 365 percent in the US and 203 percent in France.

We link taxation to income inequality by focusing on twelve (12) African countries from 2005 to 2021. Analysis is based on two datasets drawn from the World Income Inequality Database, and the African Tax Administration Forum. We employ the random between-within effects model, and cluster at the level of a country’s income group—low, lower-middle, or upper-middle income country. We document that within-country income inequality declines as shares [in gross domestic product] of income taxes, international trade taxes, resource taxes, and taxes on capital gains increase. As income taxes rose, individuals from poorer countries gained more pre-tax incomes compared to their counterparts from richer countries. As resource or capital gains taxes rose, individuals from poorer countries gained more pre-tax incomes compared to their counterparts from richer countries. We conclude that income taxes as well as taxes on natural resources extraction, international trade, and capital gains, significantly reduce income inequality.

We analyze the effect of government size on social welfare and GDP per capita growth for the sample of 36 OECD countries in the last six decades. These effects are negative but smaller in absolute terms for welfare than for GDP per capita. This result is robust to changes in the estimation method, the use of smoothed variables, the inclusion of dummy variables that control for expansions and recessions, and additional control variables, such as the composition of expenditures and taxes, and public debt. More importantly, we find that the effect of government size follows an inverted U-shape: positive and greater on social welfare than for GDP per capita growth when government size is below 35% to 40%, and negative beyond that threshold. Interestingly, the range of values for which government size positively affects growth and welfare expands significantly with government quality, productive spending, and low levels of debt.

This paper analyzes the relation between economic growth, inequality and redistribution. In a cross-country setting for 25 EU countries over the period between 2007 and 2019, we show that market-income inequality is related to higher growth in the short term. To estimate the impact of redistribution to low-income earners, we introduce a new measure, the so called net benefit share (NBS). Contrary to other findings, we show that this (targeted) redistribution to low-income earners (Q1 NBS) fosters growth in the short term, driven by the consumption and private investment channel. On the other hand, untargeted redistribution towards higher-income earners reduces growth.