Tax expenditures versus direct government spending: A comparative efficiency analysis

Karl-Heinz Paqué

No 202, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: Until recently the concept of tax expenditures has been exclusively analyzed along traditional Pigouvian lines. Broadly speaking, the introduction of tax/subsidy-schemes was considered to be justified whenever large number externalities prevent the market from working efficiently. This approach - while fruitful and important in its own right - neglects a fundamental policy problem, namely the public choice option between tax expenditures and direct government spending: independent of any welfare theoretic rationale for public intervention, there remains the question which kind of intervention - tax expenditure (implicit subsidization) or direct expenditure - is the most efficient solution.

Date: 1984
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:202

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