TB = T/NY
Introducing tax expenditures, by definition what is not collected due to tax benefits (TE) is equal to the subsidy generated to the taxpayer (TS), then TE = TS. So adding TE to T and subtracting TS:
TB = (T + TE - TS) / NY = T / NY
That is, the final effect on TB is neutral. The neutrality is perfect at global level, but TE does not benefit to everybody, consequently, the sector and regional impacts will modify relative prices and the distribution of income among sectors, regions and individuals.
This point is analyzed next with the objective of introducing new arguments that will support the suggestion for modifying the measurement methodology of TB - in its sector version (STB) – leading to take into account concepts neglected by the usual methodology of TB calculus.
“Equivalent Public Policies” and the Measurement of “Sector Tax Burden”
TE current methodology measures the revenue not collected and the corresponding subsidy not registered in the budget accounting referred to the same subsidized-taxpayer. However, there are alternatives of public policies equivalent to the establishment of taxes and subsidies whose particularity is to burden the income of certain economic agents and to subsidize others. So the estimation of STB – the same as in the regional case – is modified.
Explanations that follow demonstrate that something quite important is missing in public accounting that distort the estimates of the economic impact of certain public policies, like STB, with consequences of quasi-fiscal nature. Though the topic does not present something novel, it is opportune to analyze it and disclose it due to conceptual errors that usually register the literature on sector tax burden estimations. Those errors surprisingly are detected in papers and reports written by sector’s experts that are supposed to defend with their studies the interests for necessities of information of the sector affected by this policy measures.
The topic that is analyzed in the first place is that of the “Commercial – Foreign Trade - Policies", that is, the use of Tax on Exports (TX), Duty Customs (TM) and Quotas (CX; CM). Second, the equivalent case of rate of exchange policies (Π). As it is known, commercial policies instruments generate distortions in commodities domestic prices relative to international relative prices. The domestic relative prices of tradable goods - M (import) and X (export) - are modified with respect to international prices. Let’s see both cases.
Tax on Exports
PiM is the international price of the import good and PiX the international price of the export good. PdM is the domestic price of the import good while PdX the domestic price of the export good. Before TX, TM and/or CX; CM, given a certain exchange rate in equilibrium (Π*), the internal relative price is: