This  paper  discusses  the impact  and  the  appropriateness  of  tax  incentives  for  small  and \ud
medium-sized  enterprises  (SMEs)  in  the  European  Union.  First,  we  provide  a  survey  of implemented  tax  incentives  specifically  targeted  at  SMEs  in  the  28  EU  Member  States. Building  hereon,  we  measure  the  impact  of  these  regimes  on  the  effective  tax  burdens  of targeted  companies.  We  find  that  SME  tax  incentives  are  a  commonly  used  measure  among European policy makers. The vast majority of  regimes, however, only marginally  reduce the tax  liability  of  SMEs.  If  major  reliefs  are  available,  they  mostly  stem  from  special  tax  rates whereas  tax  credits  and  special  allowance  play  a  minor  role.  In  the  second  main  part  of  the analysis,  we  examine  the  arguments  potentially  justifying  the  usage  of  SME  tax  incentives. \ud
As a main result, small firms per se do not create more jobs and innovations nor do they face \ud
insurmountable  financing  constraints.  The  existence  of  market  failures  commonly  associated \ud
with  SMEs – and  possibly  warranting  the  use  of  SME  tax  incentives  – can  therefore  not  be confirmed.  Instead,  disproportionate  tax  compliance  costs  for  small  entities  constitute  the \ud
most  compelling  argument  for  a  special  tax  treatment.  These  compliance  costs  can  most \ud
appropriately  be  addressed  by  administrative  reliefs. Special  tax  rates,  tax  credits  and allowances,  in  contrast,  are  not  only  inefficient  but  also  ineffective  in  this  regard.  Instead  of \ud
improving  the  neutrality  of  the  overall  tax  system,  the  latter  are  likely  to  add  further \ud
distortions  and  unnecessary  complexity.  Altogether,  the  focus  of  policy - makers  should  thus\ud
shift from providing discriminatory incentives to the design of a generally neutral and simple \ud
tax system, which would benefit small as well as large enterprises