Are Preferential Tax Holidays Dynamic Inconsistent?

Kaushal Kishore

No 201630, Working Papers from University of Pretoria, Department of Economics

Abstract: In a two-period dynamic model, where a single country is trying to attract large investors endowed with capital with varying rate of returns, we show that the result of Kishore and Roy (2014), that a country has incentives to commit to a non-preferential regime to circumvent dynamic inconsistency problem does not hold. Tax revenue of the government may be higher under a preferential regime compared to a non-preferential regime.

Keywords: Tax Competition; Non-preferential regime; Dynamic Inconsistency; Rational Expectations (search for similar items in EconPapers)
JEL-codes: F21 H21 H25 H87 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2016-04
New Economics Papers: this item is included in nep-pbe and nep-pub
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