The vast majority of tax credits in the world, and in Israel in particular, are “non-tradable,” meaning they can be used only by the original beneficiary and cannot be transferred to another taxpayer. In the United States, however, there are a variety of intervention programs in which tradable tax credits are used, i.e., the original beneficiary could sell the credits to another entity, and thus realize the incentive of the benefit.

This study surveys the literature on tradable tax credits and presents a case study of the LIHTC program (the largest and oldest tradable tax credits program) to answer a few relevant questions about tradable tax credits, namely:

1. Why was this unusual way of incentivizing chosen, and what are the characteristics, advantages and disadvantages of tradable tax credits?
2. What are the guidelines for using tradable tax credits in the Israeli context?