Cyclicality of tax expenditures: the case of Israel
Tax expenditures have been rarely investigated internationally because of lack of data. This paper analyzes the cyclicality of tax expenditures in Israel, a country that has gradually intensified the use of this tool, becoming quantitatively important in terms of GDP when compared to other OECD countries. Using quarterly data for the period 1986 to 2016, I find that the pattern of cyclicality of government decisions on tax expenditures changed after 1997, following a notorious reduction of government's deficit and debt: tax expenditures became pro-cyclical in expansions and counter-cyclical in recessions. The latter finding resembles the pattern documented in the literature for government spending in selected developing economies, who achieved in recent years counter-cyclical implementation of spending.
Key Words – Tax Expenditures, Cyclical Policy.
JEL Numbers– H24, H25 and H61.