From 13 to 15 September, IDOS and its French partner, the Centre d’Etudes et de Recherches sur le Développement International (CERDI) of Université Clermont Auvergne, conducted the kick-off workshop of their new project on “Tax Expenditures and the Fiscal Contract” (TEFISCON).
It is funded by the Deutsche Forschungsgemeinschaft (DFG) and the Agence Nationale de la Recherche (ANR). Collaborating closely with research centres, think tanks and universities from Colombia, Morocco, Uganda, Zimbabwe and Switzerland, TEFISCON is dedicated to exploring a topic that carries significant implications for many countries: the impact of tax expenditures on the fiscal contract in low and middle-income countries.
Tax expenditures are preferential tax treatments granted to specific taxable activities or groups of taxpayers. They come in various forms, such as reduced tax rates, exemptions, deductions, tax credits or deferrals. Existing evidence suggests that tax expenditures play a substantial role in shaping the distribution of the tax burden within societies, affecting both horizontal equity (equal taxation of similar activities or assets) and vertical equity (shifting the tax burden in favor of wealthier segments of society). On a worldwide average, governments forgo revenues in the range of 3.7 % of GDP and a staggering 23.5 % of actual tax revenue due to the use of tax expenditures.
The project team will explore the impact of tax expenditures on the fiscal contract, which refers to an implicit agreement between the state and taxpayers, encompassing both citizens and businesses. Fiscal contracts connect individual tax compliance and the distribution of the tax burden within a society to the delivery of public services and access to political decision-making. “We will be contributing to close a significant knowledge gap in the academic debate on tax and development”, remarks IDOS’ project lead Dr Christian von Haldenwang, “but perhaps even more importantly, we will generate valuable insights to inform policymaking and encourage reforms toward more equitable and effective tax systems.”
We invite you to stay tuned for updates as this exciting journey unfolds. TEFISCON holds the promise of advancing our understanding of tax policies in low- and middle-income countries and their impact on society.