Managing the effects of tax
            expenditures on the national budget : Managing the effects
            of tax expenditures on national budgets
Tax expenditures, in the form of tax
            provisions, are government expenditures. They are
            conceptually and functionally distinct from those tax
            provisions whose purpose is to raise revenue. Tax
            expenditure programs are comparable to entitlement programs.
            Therefore, tax expenditures must be analyzed in spending
            terms and integrated into the budgetary process to ensure
            fiscal accountability. In addition, tax expenditures must be
            audited for performance and the information must be
            published (with comprehensive analysis) to ensure fiscal
            transparency. The author analyzes the concept and
            definition, size, and effects of tax expenditures, as well
            as the fiscal accountability and transparency of tax
            expenditure spending. In short, tax expenditures affect (1)
            the budget balance, (2) budget prioritization in allocation,
            (3) the effectiveness and efficiency of fiscal resources,
            and (4) the scope for abuse by taxpayers, government
            officials and legislators. While reviewing the current
            practices in tax expenditures against the requirements of
            fiscal accountability and transparency, she finds that this
            fiscal area must be strengthened. The author sketches four
            building blocks to strengthen tax expenditures toward fiscal
            accountability and transparency, based on the literature
            developed by Surry and McDaniel, the practices from
            industrial and developing countries, the Campos and Pradhan
            fiscal accountability model, and the International Monetary
            Fund's fiscal transparency code. The author argues that
            normative/benchmark tax structure, a revenue-raising
            component of the tax system, should be formalized. The
            normative/benchmark tax structure should be legally defined
            in the tax law and should be transparent. The tax receipts
            from this normative/benchmark tax structure should be
            quantified and published. Presently, many countries could
            publish imputed tax revenue from normative/benchmark tax
            structures because such data is available. Only if imputed
            tax revenue is published in the same way as the other budget
            components-tax revenue received, tax expenditures, direct
            expenditures, and fiscal balance-will a budget system be
            truly transparent in terms of revenue-raising activities and
            expenditure activities. In addition, when the tax
            revenue-raising activity is formalized, the inherent
            spending nature of tax expenditures is further exposed.
            Therefore, tax expenditures should be added to direct
            expenditures forming total government expenditures.
            Furthermore, the conventional concept of the size of
            government should be remedied by including both direct
            expenditures and tax expenditures.