Are Taxes Credits Effective in Developing Countries? The Recent Uruguayan Experience
Paula Carrasco (),
Paola Cazulo and
No 1045, Research Department working papers from CAF Development Bank Of Latinamerica
Investment promotion through tax incentives has been a key component of the growth strategies pursued in Uruguay by the last three administrations. A new regime was established, regulated by the Executive Decree 455, which caused the main channel for subsidizing investment to undergo a major overhaul. This regime immediately generated a battery of researchable questions about its effectiveness and efficiency. Using a big dataset, first put together for this study from firm-level administrative records kept by the tax collection and pensions institutes between 2005 and 2011, we test the hypotheses of significant and positive effects of obtaining a tax credit through the new regime on investment and employment outcomes. A matched differences-in-differences strategy confirms that the promotion regime introduced in 2008 had a statistically significant effect on the firmsâ€™ rate of investment (around 11%); while effects on employment growth rate are more ambiguous. These findings are buttressed by several robustness tests. Further probing uncovers heterogeneity along the promotion timeline, with the greatest effect on the rate of investment occurring in the projectsâ€™ first year.
Keywords: Finanzas pÃºblicas; InvestigaciÃ³n socioeconÃ³mica (search for similar items in EconPapers)
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Journal Article: Are Tax Credits Effective in Developing Countries? The Recent Uruguayan Experience (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:dbl:dblwop:1045
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