Tax Holidays and the International Capital Market

Jean-Francois Wen

International Tax and Public Finance, 1997, vol. 4, issue 2, 129-148

Abstract: The paper shows how a tax holiday may signal to a skepticalcapital market that the future level of taxation will be moderate.After the signal has informed investors that the host countrygovernment is a low-spender, the tax profile flattens out, correspondingto a tax reform stage. Contrary to the recent literature on taxholidays, this model assumes that: the capital market is perfectlycompetitive; sunk costs are captured by a convex cost function,instead of fixed costs; taxation is distortionary, not lump-sum;and the government maximizes a welfare function rather than taxrevenue. Copyright Kluwer Academic Publishers 1997

Keywords: tax holidays; foreign investment (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (5)

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DOI: 10.1023/A:1008686203598

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