This paper aims at providing an overview of the theoretical considerations and a review of an analytical framework on the tax expenditures for net social expenditure. This paper presents simulations of the impact of tax expenditures on overall governm...
This paper aims at providing an overview of the theoretical considerations and a review of an analytical framework on the tax expenditures for net social expenditure. This paper presents simulations of the impact of tax expenditures on overall government budget positions and on local budget positions. Using demographic projections prepared by OECD, models have been constructed for the evolution of tax expenditures.
These scenarios for net social expenditure are set within the wider framework of general government balances to capture the effects of tax expenditure.
This paper is compared the 2nd edition of the net social expenditure paper published in 2001. It contains an overview of net (after tax) public and private social expenditure indicators. These indicators have been developed to supplement available historical information on gross social expenditure trends by accounting for the varying impact of the tax system across countries. Tax systems can affect social spending in three ways:
· Governments levy direct taxes and social security contributions on cash transfers.
· Governments levy indirect taxes on goods and services bought by benefit recipients.
· Governments may award tax advantages similar to cash benefits and/or grant tax concessions aiming to stimulate the provision of private social benefits.
The paper summarises the methodological framework as previously developed, but extends coverage to eighteen countries for which information for 1997 is now available: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, Germany, Ireland, Italy, Japan, Korea, the Netherlands, New Zealand, Norway, Sweden, the United Kingdom and the United States.
The indicators developed in this paper aim to measure what governments really devote to social spending, net public social expenditure, and what part of an economys domestic production recipients of social benefits draw on, net total social expenditure.
Social benefits include cash benefits, social services (including health care) and tax breaks with a social purpose, e.g. tax expenditures towards families with children. Governments also make use of the tax system to directly pursue social policy goals. Fiscal measures with social effects are those which can be seen as replacing cash benefits (e.g. child tax allowances) or stimulating the provision of private benefits (e.g. tax advantages for the provision of private child-care facilities). Tax-advantages can be given to households, employers and private funds (TBSPs).
Thus, tax systems can significantly affect the degree to which expenditure budgets reflect true public social effort. Usually, governments claw back more money through direct and indirect taxation of public benefit than the value of the tax breaks awarded for social purposes. Hence, net public social expenditure is generally less than gross spending indicators suggest. Furthermore, because of direct taxation of benefits and the indirect taxation of goods and services acquired that are financed with it, benefit income at the disposal of households is substantially smaller than suggested by gross indicators.
Accounting for tax rates on public and private social benefits, facilitates the identification of the proportion of an economy domestic production to which recipients of these benefits lay claim; net total social expenditure.
A comprehensive analysis of tax expenditure requires information on public and private for the impact of tax systems on social spending.
This information is now available for 18 countries for 1997.
Notwithstanding ongoing efforts to improve the existing information set, data limitations continue to exist. Available data on private social benefits are considered to be of lesser quality than information on public spending. Data-limitations are most significant concerning employer-provided family benefits and benefits by non-government organisations. Furthermore, methodological and data problems affect the measurement of tax breaks towards social purpose.