Tax concessions amounting to billions are not effective and should be abolished, according to research by the University of Cologne.
The study, conducted by FiFo Koln, ZEW Mannheim, ifo Institute and Fraunhofer FIT, evaluated a total of 33 German tax breaks that add up to 7.4 billion euros.
Tax benefits are important, broadly applicable and potentially efficient instruments for creating incentives for private activities and for promoting policy objectives.
However, Dr Michael Thoene, Head of the Fifo Institute for Public Economics at the University of Cologne, says, “of the 33 tax breaks in Germany, 10 measures got an overall rating ‘weak’ because they were found to fall short of their expected objectives, therefore, they need to urgently be fixed or abolished completely.”
“The tax losses examined for the individual measures range from just under one million to well over one billion euros a year,” says Sven Stoewhase, head of Fraunhofer Institute’s quantification team.
The tax breaks mainly include reductions and exemptions that are provided for energy, electricity, car and income tax and they were rated against a framework that assesses them for: relevance, effectiveness, sustainability, transparency and monitoring.
The authors suggest that tax benefits must be monitored with particular vigilance to ensure that they don’t miss their purpose or lead to deadweight effects. Otherwise governments are losing billions unnecessarily.
