The 2025 Tax Expenditures Lab Flagship Report provides important insights on tax expenditure transparency and effectiveness. Recently released by authors from the German Institute of Development and Sustainability and Council on Economic Policy, it offers multiple valuable analyses of tax expenditure use.
The report begins by reminding us that:
Tax expenditures continue to represent one of the most important, and yet least examined dimensions of fiscal policy. … [T]he use of tax expenditures – benefits granted through preferential tax treatment – remains both widespread and opaque. Tax credits, exemptions, deductions and other tax expenditures trigger average losses in government revenue of almost 4 percent of GDP. Yet, close to half of all countries do not report on the revenue they forego due to these provisions. Among those that do, many provide only minimal data. Systematic evaluation is largely absent.
Prof. Dr. Anna-Katharina Hornidge and Dr. Alexander Barkawi, Tax Expenditures Lab Flagship Report 2025
The work of the Tax Expenditures Lab shines a light on this corner of fiscal policy. Their research on tax expenditures both encourages and enables better understanding of the impacts on budgets and economies.
Findings from this year’s report include:
- More jurisdictions are publishing tax expenditure reports, yet only half of the world’s jurisdictions do so and reporting practices vary.
- Despite progress, tax expenditure reporting remains far from being an effective instrument of fiscal governance, with limited transparency, weak methodologies, and little evaluation.
- Existing evidence reveals that many tax expenditures do not meet policy expectations. Evaluations that have been completed show that many tax expenditures are moderately effective, though evaluation coverage remains limited.
- A whole-of-government approach with strong coordination and collaboration is needed for effective administration of investment tax incentives. Strong compliance, governance and transparency mechanisms should be put in place.
- Persistent gaps in high-quality data undermine transparency and fiscal accountability
- Corporate tax incentives that promote climate-related assets or activities are increasingly common, but their effectiveness depends on their design, targeting and the wider policy and economic context.
The report also advocates for more tax expenditure evaluations, encouraging assessment of policy impact, cost, and externalities or side effects. Currently, 87 percent of jurisdictions do not include or reference tax expenditure evaluations in their reporting, although evaluation work is expanding.
As in US states, global tax expenditure and incentive transparency has improved. But we still need to understand if policies are effective and efficient. We are at an important point now where we can leverage transparency data to conduct high quality evaluations so that tax expenditures can be held accountable for their stated goals.
For more information:
German Institute of Development and Sustainability (IDOS) and Council on Economic Policies (CEP), Tax Expenditures Effectiveness: Tax Expenditures Lab Flagship Report 2025 (Bonn: IDOS, 2025), https://doi.org/10.23661/r3.2025.
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