3) The growing use of discretionary federal subsidies (in Argentina the “ATN” or “Aportes del Tesoro Nacional”) to sub-national governments, not always justified by asymmetric shocks in provincial fiscal situation; 4) The “tax expenditure” bound to fiscal incentives granted to activities with certain specific regional localization (in Argentina: “regímenes de promoción regional”), based on the argument of the economic recovery of poor areas.
The intention of this Appendix is to review some issues dealing with the economic effects of this new conception of Public Finance, particularly the tax expenditure concept, and those policy instruments relevant for the methodology of sector tax burden measurement. 33
The “Tax expenditure” concept
Tax expenditure is a concept introduced by Stanley Surrey34, Fiscal Administrator, Professor of Law at the Harvard Law School and former president of the National Tax Association (USA). In 1968 Surrey observed that many dispositions of the American Tax Code granting preferential advantages to certain people or activities were essentially similar to levy with the tax to such people or activities and to use the corresponding revenue to subsidize such taxpayer or activities, so treating the decision as an expenditure of the public budget. Surrey suggested that contrary to the rest of fiscal decisions included in the public budget, these assignments were treated with no similar legal control, or received little attention for the fiscal analysis, like the one corresponding to explicit expenses included in the budget. So as Secretary of the Treasure Surrey produced the first "budget" of tax expenditure, listing a series of articles of the tax code. This practice was then incorporate as a formal obligation since 1974 by the “Budget Control and Impoundment Act”. From that moment on, many American states and other countries adopted this modality of budget accounting.
In USA the Federal Government carries out Reports on Tax Expenditure in the case of the Income Tax (Individuals and Corporations). On the other hand, the states cover a wider range of taxes, including the Retail Sales Tax and Excise Taxes, and in some states the Real Estate Tax. The first state that applied the tax expenditure report was California, with the budget of Fiscal Year 1976.
The expectations generated by the concept were big. It was not simply seen as an improvement in budget accounting, but rather a better control mechanism over fiscal policy making, probably inducing changes or reforms in the tax code, by informing about the existence of such subsidies, and political inducing its substitution by specific expenditure programs, subject to cost-benefit analysis as the rest of government's programs. This would imply, finally, a better control of fiscal policy.
Helen F. Ladd35 analyzed the evolution of the use of the concept. Using her paper as source of this arguments-historical revision, some issues of the technical discussion are reviewed next.
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Regional aspects of this question were analyzed in Piffano (2004a and 2005). Surrey (1973); Surrey and McDaniel (1985). Ladd (1999).