Tax Expenditure Scholarship and Analysis in China

Abstract

In the last quarter of the 20th century, the concept of a tax expenditure budget emerged as the primary mode of analysis of concessions in tax laws in advanced economies. Under this approach, the fiscal cost of concessions is calculated and lost revenue is treated as the equivalent of revenue collected and then disbursed by the government as subsidies to those benefiting from the concessions. The concept initially attracted considerable academic interest in China, though scholarship was largely limited to translation of foreign materials and subject to some confusion, as some scholars concluded the use of tax expenditure budgets amounted to endorsement of concessions as a vehicle for economic development. By the end of the first decade of the 21st century, academic interest in the field had largely faded, but government interest, first at the national level and more recently and selectively at the provincial level, has grown and limited tax expenditure accounts have been prepared, albeit considering newly enacted concessions only. It remains possible that China will some day adopt a full tax expenditure budget analysis process. Before that can happen, tax expenditure accounts must be broadened to include previously enacted concessions still in force and, more importantly, a move must be made to the second step of tax expenditure analysis, namely, subjecting tax expenditures to the same rigorous analysis that direct subsidies receive, with appropriate changes to their design or their termination if it cannot be shown that the expenditures are effectively targeted and achieving desired outcomes.