Tax expenditure

A government revenue loss caused by tax provisions that favor particular activities or groups, functioning like public support. It is measured against a benchmark tax system.

Tax preference: A tax rule that reduces liability for selected taxpayers, activities, or forms of income relative to a benchmark. Tax expenditures arise when preferences depart from the chosen benchmark tax system.
Government spending: Public outlays used to provide goods, services, transfers, or other government support. Tax expenditures provide support through foregone revenue rather than recorded outlays.
Progressive tax: A tax system in which average tax rates rise as taxable income increases. Some tax expenditures alter how progressive the overall tax system is.
Tax benchmark: The reference tax system used to judge whether a provision departs from ordinary tax treatment. Changing the benchmark can change which provisions qualify as tax expenditures.
Tax expenditure budget: A government report estimating revenue losses from selected tax provisions. It presents tax expenditures alongside other budget information, though estimates are not directly comparable to spending.
Direct spending: Government payments or transfers authorized by law and recorded as outlays. Unlike direct spending, a tax expenditure reduces revenue through the tax system.
Tax equity: The principle that a tax system should distribute burdens fairly among taxpayers. Preferences raise questions about who receives public support and who finances it.
Behavioral response: A change in economic behavior caused by a change in incentives or constraints. Responses to repeal or redesign can make revenue-loss estimates differ from actual savings.
Tax incidence: The analysis of which people ultimately bear the economic burden of a tax. The formal recipient of a tax preference may differ from who receives its economic benefit.
Tax subsidy: A tax provision that lowers costs or increases returns for a selected activity or group. Tax subsidy is often used for the supportive effect that tax-expenditure accounting measures.

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