SYSTEMATIC REVIEW OF EVIDENCE ON THE IMPACT OF TAX INCENTIVES IN LATIN AMERICAN AND CARIBBEAN COUNTRIES

Glenn Jenkins (), Abdallah Othman (), Edna Armendariz () and Anastasiya Yarygina ()
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Abdallah Othman: Cambridge Resources International Inc.
Edna Armendariz: Inter-American Development Bank (IDB)
Anastasiya Yarygina: Inter-American Development Bank (IDB)

No 2025-05, Development Discussion Papers from JDI Executive Programs

Abstract: This report provides a systematic review of the impact of tax incentives on investment and economic growth in Latin American and Caribbean (LAC) countries. While tax incentives are widely used to attract foreign direct investment (FDI), stimulate employment, and promote sectoral development, empirical evidence on their effectiveness remains mixed. The analysis reveals that although some incentives have successfully increased investment in targeted sectors, many fail to deliver significant economic benefits, often leading to substantial revenue losses. A critical gap in this report is the lack of comprehensive ex-ante evaluations, with most studies focusing on ex-post assessments. Cost-benefit analyses indicate that broad-based tax incentives are less efficient than targeted schemes, particularly in research and development (R&D) and export-oriented industries. The findings highlight the need for improved evaluation frameworks, better governance, and more strategic tax incentive policies to ensure sustainable economic growth.

Keywords: Corporate Income Tax; Cost-Benefit Analysis (CBA); Economic Growth; Investment Policy; Fiscal Policy; Public Finance; Foreign Direct Investment (FDI); Latin America and the Caribbean (LAC); Special Economic Zones (SEZs); Tax Incentives (search for similar items in EconPapers)
JEL-codes: F21 H20 H25 H32 O23 (search for similar items in EconPapers)
Pages: 89 Pages
Date: 2025-02-05
New Economics Papers: this item is included in nep-acc, nep-lam, nep-pbe and nep-pub
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