What drives tax expenditure effectiveness?

IDOS and CEP present their 2025 Flagship Report on tax expenditures as well as the new edition of the Global Tax Expenditures Transparency Index (GTETI)

On 4 December, IDOS and the Council on Economic Policies (CEP) presented the new Tax Expenditures Flagship Report. This report is the third in a series published every two years, each edition focusing on specific aspects of the topic. This year, the focus was on how to assess and ensure the effectiveness of tax expenditures. Given that such preferential tax treatments result in global government revenue losses of at least 3.7 percent of GDP and approximately a quarter of actual tax revenue, this question is undoubtedly of great importance. In ten chapters, experts from the World Bank, the International Monetary Fund (IMF), the OECD, the United Nations, and academia join the IDOS-CEP team to address key aspects of the topic—for example, how incentives for research and development (R&D) or climate-related tax incentives can be designed effectively.

At the same event, the new (second) version of the Global Tax Expenditures Transparency Index (GTETI) was also presented. This index assesses countries based on the comprehensiveness of their reporting on the tax expenditures they grant. The first version of the GTETI was launched in 2023. This year, the number of countries included in the index has grown from 105 to 116. It is becoming increasingly clear that the quality of public reporting on tax expenditures does not depend on income levels or the capacity of public administration, but primarily on the political will of governments to provide comprehensive information on this core aspect of fiscal policy. For example, Indonesia, Benin, Ecuador, and Guinea rank in the top quarter of the GTETI, while countries such as Romania, Hungary, Poland, and Switzerland are found in the bottom quarter. However, a common feature of tax expenditure management worldwide is the absence of thorough evaluations. On this topic, the GTETI reveals a significant need for improvement in the vast majority of countries.