Study evaluates the impact of tax amnesties on public policies
FGV's Escola Brasileira de Administração Pública e de Empresas (FGV EBAPE) publishes the research " Billions down the rabbit hole ? Evaluating tax amnesties as public policies " analyzes the effectiveness of the Tax Recovery Program (Refis). The federal debt forgiveness program entails a large amount of tax waivers and is frequently used in Brazil, especially in periods of economic crisis. The results of the study show the negative impact of the 2014 Refis on maintaining jobs at participating companies, which lost, on average, 6% more workers than non-participating companies between 2015 and 2017.
According to doctoral student at FGV EBAPE and former student of the Professional Master's in Public Administration (MAP), Natalia Ferreira Rodrigues, the result of the study can help in the elaboration of policies that are more appropriate for the target audience. She cites as an example the recent Law nº 13.988/2020 (Small Value Litigation Transaction). For her, the research can also contribute to the transparent use of tax benefits, so that such policies serve the public interest.
“The research, therefore, sheds light on little publicized tax policies that commit tens of billions of dollars of public money. We have strong evidence of the negative effects of tax amnesties and their dangers in general. After three years, beneficiaries had 6% fewer jobs than non-beneficiaries, which showed a strong negative effect of Refis”, explained Rodrigues, who conducted the research in collaboration with researcher Diego de Faveri, under the guidance of professor and researcher Gregory Michener, both from FGV EBAPE.
The first part of the research analyzed Refis from the public policy cycle model: scheduling, formulation, implementation and monitoring. The second part brought an assessment of the impact of Refis on the generation/maintenance of jobs, which is one of the intended effects of the program. With data from approximately 10,000 companies, the researchers used the differences-in-differences and matching method to create a quasi-experiment to assess the impact of Refis on job generation/maintenance in companies that received tax benefits.
Tax amnesties can be considered one of many “tax expenses”, defined as government incentives or benefits, such as subsidies or exemptions, that result in revenue losses for the government. The purpose of the amnesty is to encourage business in difficult times by alleviating tax arrears. The problem, according to the researchers, is that tax amnesty can also generate moral hazards, such as the pursuit of income and other deviations. Another point to highlight is the issue of opportunity costs.
“The loss of income is equivalent to the loss of direct investments in education and other essential sectors. Therefore, we question the validity of tax amnesties as public policies. When doing this analysis from a policy cycle perspective, the evidence points to a deficit of transparency due to the legal process in the formulation, adoption, implementation and oversight of the administration of tax amnesties in Brazil. In addition, the results showed the negative effects of tax amnesties on job creation or maintenance,” explained Michener.
The study's evidence casts doubt on the public value of these policies, both in terms of return on public investment and governance. These results mirror much of the literature that recommends that governments rethink the use of tax amnesties and other forms of tax expenditures.
To learn more about the study, visit the website .
