The fiscal and equity impact of social tax expenditures in the EU

Publication type:

EUROMOD Working Paper Series

Series Number:

EM20/19

Authors

Salvador Barrios, Flavia Coda Moscarola, Francesco Figari, Luca Gandullia and Sara Riscado

Publication date

18 Nov 2019

Abstract

Tax expenditures are preferential tax treatments granted to specific individuals or categories of households which aim at achieving social and economic goals. They are widely used by EU Member States. However, their fiscal and equity impacts are not always clear and their effectiveness and efficiency as a policy instrument need to be carefully evaluated, especially in the present context of constrained public finances. This paper quantifies the fiscal and equity effects of social tax expenditures related to housing, education and health in 27 European countries making use of EUROMOD, the EU-wide microsimulation model. We find a variety of effects, in terms of sign and magnitude, across Member States, and within these, among types of households. Overall our findings suggest that the impact of tax expenditure on tax revenues and on income inequalities can be sizeable. The redistributive impact of removing tax expenditures can go both directions, either on the progressive or regressive side, depending on the country and the tax expenditure considered.

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