1
Unit 5&6
Student’s Name
Institution
Date
, 2
Unit 5&6
1st Prompt
(1) Explain what “tax expenditure” means.
A tax expenditure is a special provision of the tax code, such as credits, deductions, deferrals,
and exclusions created to benefit special groups of taxpayers or activities. Special expenditures
are normally defined as "a government's estimated revenue loss that results from giving tax
concessions or preferences to specific class of tax payer or specific class of activities" (Bikas &
Jurevičiūtė, 2016). The revenue expenditure or revenue loss is the difference between potential
tax collection under a benchmark tax system and actual tax collected after the government’s tax
relief.
(2) Explain the purpose of tax expenditure.
The tax expenditure approach is used by governments in place of direct spending to provide a
subsidy to a targeted class of taxpayers or to promote a certain form of activity. The tax system is
used to deliver and spread government systems. The government can use the tax system to
encourage target groups to change certain individual behaviors, such as increasing retirement
savings. Tax expenditure can also be used to cushion taxpayers against hard economic times,
such as during the COVID-19 pandemic.
(3) Give one example of tax expenditure, and explain its impact.
A government may reduce the tax liability of the lowest income earners by one percent
during a high inflation period. The effect of this tax expenditure is that the targeted taxpayers
Unit 5&6
Student’s Name
Institution
Date
, 2
Unit 5&6
1st Prompt
(1) Explain what “tax expenditure” means.
A tax expenditure is a special provision of the tax code, such as credits, deductions, deferrals,
and exclusions created to benefit special groups of taxpayers or activities. Special expenditures
are normally defined as "a government's estimated revenue loss that results from giving tax
concessions or preferences to specific class of tax payer or specific class of activities" (Bikas &
Jurevičiūtė, 2016). The revenue expenditure or revenue loss is the difference between potential
tax collection under a benchmark tax system and actual tax collected after the government’s tax
relief.
(2) Explain the purpose of tax expenditure.
The tax expenditure approach is used by governments in place of direct spending to provide a
subsidy to a targeted class of taxpayers or to promote a certain form of activity. The tax system is
used to deliver and spread government systems. The government can use the tax system to
encourage target groups to change certain individual behaviors, such as increasing retirement
savings. Tax expenditure can also be used to cushion taxpayers against hard economic times,
such as during the COVID-19 pandemic.
(3) Give one example of tax expenditure, and explain its impact.
A government may reduce the tax liability of the lowest income earners by one percent
during a high inflation period. The effect of this tax expenditure is that the targeted taxpayers
