June 8, 2000
The use of tax incentives instead of direct spending to promote social and economic goals is growing. This paper considers whether it matters if fiscal interventions take the form of direct spending or tax breaks. Tax breaks can, and increasingly do, replace spending programs with the same effects on resource allocation and income distribution. Costs of administration may differ between them, however, depending on program design features. While the choice between the two must be made on a case-by-case basis, the increased use of the tax system for social policy raises broader concerns about political accountability.