Through tax expenditure, a government can decide to incentivise the development of a certain branch of the economy or activity, or privilege a given category of taxpayer by tax allowances or exemptions. It thus consciously and deliberately assents to the reduction of its own revenue. The same effect would be achieved if the government collected tax from all possible grounds, and then gave direct subsidies from the expenditure side of the budget. There has been no research in Croatia of this kind of expenditure to date, but since it is potential government revenue, which the government voluntarily renounces, it would be useful to know the total amount of tax expenditure and who it really affects. Hence the object of this research into tax expenditure was to systematically and in a single place present all tax expenditure and to determine the real level of tax expenditures in Croatia in the 2001-2004 period.