This post draws on FERDI Working Paper 386: Dama, Geourjon, and Tape (2026), “Tax Expenditure Reporting as a Commitment Device: Evidence from Emerging and Developing Countries,” and on FERDI Policy Brief B299 (October 2026).
Tax expenditures (TEs), the revenue governments forgo by granting exemptions and other tax preferences, are often used to pursue economic and social objectives. However, they may narrow the tax base and remain less visible than direct budget spending. Over the past two decades, a growing number of countries have adopted formal TE reporting frameworks (Redonda, von Haldenwang, and Aliu 2025). The rationale is that TE reporting strengthens transparency and fiscal discipline, and helps identify ineffective tax preferences.
Why Would Reporting Make a Difference?
TEs pose a classic political economy problem. The benefits of a given preference are concentrated on well-organized groups, while their cost is dispersed and opaque (Burman and Phaup 2012). In the absence of systematic accounting, governments may repeatedly grant exemptions that individually look small, even though their cumulative effect can substantially erode revenue. The other side of the coin is equally problematic: a few very generous and costly provisions may benefit only a handful of taxpayers.
We argue that publishing a TE report shifts the balance governments strike between the political gains from granting preferences and their revenue cost, through three reinforcing channels:
- The information channel: once the detailed cost of tax preferences is published, governments, legislators, the media, and civil society can observe and monitor it. Tax and customs administrations also have stronger incentives to improve their control of the preferences they apply.
- The accountability channel: publication allows parliaments, opposition parties, international organizations, and donors to track revenue objectives, challenge new preferences, and question existing ones. Granting or maintaining an exemption becomes politically costlier.
- The institutional capacity-building channel: producing reports often requires establishing or consolidating a dedicated tax policy unit (TPU), building tax databases, and coordinating across institutions. These routines later support ex ante analysis of new measures and closer monitoring of existing ones, which is consistent with a delayed revenue response and with stronger effects under regular reporting.
What does the evidence show?
Using data on tax expenditure reporting from the Global Tax Expenditures Transparency Index (GTETI) and the Global Tax Expenditures Database (GTED), tax revenue data from the IMF’s World Revenue Longitudinal Database (WoRLD), and country-level indicators from the World Development Indicators (WDI), we follow 151 emerging and developing economies over 1990–2024. By 2024, 80 of them had published at least one TE report, though some started earlier and reported more regularly than others. Comparing countries that begin publishing with similar countries that do not, we reach three key findings:
Our first result suggest that reporting can boost revenue, but not overnight. TE reporting increases tax revenue by about 10% in the medium run, corresponding to a 1.4 percentage point increase in the tax-to-GDP ratio at the sample mean of around 14.2%. Robust gains emerge six to seven years after a country starts publishing. This delayed profile is plausible, as improving legal inventories, data quality, inter-agency coordination, and the review of tax exemptions takes time.
We also find that most of the gains come from direct taxes. Revenue from those taxes increases by about 1.1 percentage points of GDP. Many of the most discretionary preferences, such as tax holidays, profit exemptions, accelerated depreciation, investment allowances, and tax credits, concern corporate and personal income taxes. Their cost can often be estimated with reasonable precision and their beneficiaries are identifiable, so making them visible can support a gradual broadening of the base. Results for indirect taxes are less conclusive. VAT and customs-duty preferences are often embedded in legal texts and can be politically difficult to reform, given that they often pursue social and redistributive objectives (for further discussion, see Klemm and Van Parys 2012; Keen 2013; Celani, Dressler, and Wermelinger 2022).
The payoff also depends on sustained reporting and on initial conditions. Countries that report regularly see a statistically significant average revenue gain of 9.9% over the eight years following the start of reporting, while the response is weak and insignificant for irregular reporters. Similarly, countries that have published more than seven reports gain about 9.8% on average, while those with fewer reports see no lasting improvement. The effect is also particularly large in low-income developing countries (17.3%) and in Sub-Saharan Africa (20.6%). This is consistent with greater returns where fiscal institutions are initially weaker and the room for improvement is greatest.
Our results are consistent with country experiences discussed at the FERDI-MRIP webinar of January 2026. Morocco has annexed its TE report to the annual budget law since 2005, bringing the issue into the budget debate and supporting a gradual shift from some tax preferences toward more transparent direct support. Madagascar uses its annual report as a strategic tool and requires the opinion of its TPU for any new tax exemption. Guinea, a newcomer, has set up a centralized process to review exemptions. Togo has emphasized ex ante impact assessments and the need to distinguish improved report coverage from a genuine increase in TEs.
Policy Implications
These findings resonate with the Sevilla Commitment, in which countries reaffirmed the need to restore fiscal space and to strengthen the oversight and management of TEs, including through transparent reporting. Our results suggest that this agenda can deliver measurable revenue gains. Three practical implications follow.
First, reporting should not be reduced to a compliance exercise. Its value lies in the routines and decisions it makes possible. A well-designed report improves transparency; a regular reporting system can change how tax preferences are granted, reviewed, and removed, which is the most plausible channel through which revenue moves.
Second, patience is part of the policy. Since revenue gains take several years to materialize, policymakers should resist a one-off approach. Reporting is most effective when it becomes a recurrent commitment, anchored in the budget process and supported by a stable, competent, and progressively strengthened tax policy unit.
Third, political will must be matched by sustained support. Gains appear largest in low-income countries and Sub-Saharan Africa, where institutional capacity is often weakest, and irregular reporting tends to occur where skilled staff are scarce and inter-agency cooperation is fragile. National ownership is indispensable to launch and sustain the process, but development partners and regional institutions can help consolidate it over the medium term. Their support should evolve with each country’s needs, going beyond the initial technical assistance usually given to a newly created team for its first report.
Transparency on tax expenditures is often presented as a matter of good governance. Our evidence suggests it is also a matter of revenue: when countries commit to it over time, it pays off.