Abstract
Tax expenditures have rarely been 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 prominent reduction of government's deficit and debt: Tax expenditures became procyclical in expansions and counter-cyclical in recessions. The latter finding resembles the pattern documented in the literature for government spending in selected developing economies, which achieved counter-cyclical implementation of spending in recent years.
Key Words – Tax Expenditures, Cyclical Policy.
JEL Numbers– H24, H25 and H61.