Classification of Tax Expenditure by Environmental Impact: Channelling Public Finances Towards a Green Economy

This case study presents an overview of the methodology and findings on the policymaking process for how tax expenditures are classified and used for climate development in Costa Rica. In generating information to align Costa Rica’s fiscal policy with its climate goals, the factsheet catalyses Costa Rica’s overall stride towards green tax reform and decarbonization. 

The methodology delineates multiple channels that identify tax expenditure line items, estimating incidence factors to classify them qualitatively. As a result, it generates information for decision-making that can help align the country’s fiscal policy with its climate goals. The factsheet not only identifies the environmental impact of tax expenditure, but also aims to facilitate interinstitutional cooperation between public finances and environmental authorities throughout the implementation processes of future tax proposals.