TEFISCON is a German-French project that is implemented jointly by IDOS and the Centre d'Etudes et de Recherches sur le Développement International (CERDI) at Université Clermont Auvergne. The project explores a topic that has not been widely researched so far: How does the use of tax expenditures in low- and middle-income countries affect the fiscal contract?

Tax expenditures are preferential tax treatments for specific taxable activities or groups of taxpayers. The available evidence indicates that tax expenditures often have a substantial impact on the distribution of the tax burden within a given society, both in terms of horizontal equity (unequal taxation of similar activities or assets) and vertical equity (a shift of the tax burden regarding the wealthier segments of society). Evidence also shows that they have a sizable fiscal impact that restricts the ability of governments to finance public services through direct spending.

The fiscal contract, on the other hand, refers to an implicit agreement between the state and taxpayers that links public service delivery and access to political decision-making to individual tax compliance and the distribution of the tax burden within a society. This concept has proven to be highly relevant to understand patterns and dynamics of taxation in countries worldwide, including low- and middle-income countries.

The project employs a multi-method approach based on qualitative (case-specific) and quantitative (statistical) methods for data collection and analysis. TEFISCON combines theory-guided conceptualisation with empirical research using inductive and statistical inference. The team will conduct field research in four case study countries: Zimbabwe, Colombia, Uganda, and Morocco, partnering with local think tanks, universities and research centres.

As little is known regarding the impact of tax expenditures on the fiscal contract, TEFISCON contributes to closing a significant research gap. Furthermore, the project generates new evidence on the specific role tax expenditures have in fiscal contracts and the underlying causality paths that drive this relationship. TEFISCON also broadens the debate by focusing on government-business relationships. TEFISCON's findings are relevant to academic research, with significant repercussions on the political debate.