Economic Thought and Practice, , 2026.
Review article
https://doi.org/10.17818/EMIP/2026/7
METHODOLOGICAL AND THEORETICAL CHALLENGES IN TAX EXPENDITURE ANALYSES
Emil Vargović
orcid.org/0000-0002-2591-0436
; Institute of Public Finance
*
Vjekoslav Bratić
orcid.org/0000-0002-9295-0286
; Institute of Public Finance
Matea Cvjetković
orcid.org/0009-0002-7691-256X
; Institute of Public Finance
* Corresponding author.
Abstract
The paper explores various methodological and theoretical challenges in tax expenditure analyses. A comprehensive analysis of tax expenditures is a complex task that requires significant resources and time, and is further complicated by the lack of appropriate data. In addition, the lack of a single definition of tax expenditures makes their identification, analysis, and cross-country comparison difficult. Tax expenditures are commonly defined as deviations from a benchmark tax system, and their introduction results in tax revenue losses. They usually take the form of tax relief, exemptions, exclusions, deductions, deferrals, reductions in the tax base, or reductions in the tax liability. This paper also examines advantages and disadvantages of tax expenditures, as well as the methodological challenges involved in the analysis and evaluation of tax expenditures. The focus is on the analysis of costs and cost-effectiveness, particularly on the different methods of calculating tax expenditures and the associated losses in tax revenue, as well as on the analysis of the direct and indirect effects of tax expenditures. The conclusion highlights several recommendations for the reform of tax expenditures, aimed at improving their effectiveness, cost-efficiency, more responsible implementation, and transparency.
Keywords
tax expenditure; methodological challenges; cost efficiency; tax revenue loss; microsimulation
Hrčak ID:
345092
URI
Publication date:
4.3.2026.
Visits: 518 *