Methodology for Measuring the Fiscal Effect of Regional Expenditures in Colombia

The concept of tax expenditure refers to the revenue the treasury foregoes as a result of applying preferential tax regimes with a view to aiding or stimulating certain economic sectors, activities, regions, or agents. Defined in this way, tax expenditures are additional tools for governments to utilize in state intervention, which aim to achieve similar results to those that can be obtained through direct public expenditure. As such, they should be subject to the same controls and transparency criteria as the latter. The general objective of this paper is to develop a methodology to estimate tax expenditures at a regional level, based on the particular case of Colombia.