Causes, Benefits, and Risks of Business Tax Incentives

Alexander Klemm

No 2009/021, IMF Working Papers from International Monetary Fund

Abstract: This paper provides an updated overview of tax incentives for business investment. It begins by noting that tax competition is likely to be a major force driving countries' tax reforms, and discusses tax incentives as a possible response to this. This is complemented by other arguments for and against tax incentives, and by an illustrative analysis of different incentives using effective tax rates. Findings from the empirical literature on tax incentives are also presented. Based on the overview of theoretical and empirical findings, the paper then suggests a matrix of criteria to determine the usefulness of different tax incentives depending on a country's circumstances.

Keywords: WP; accelerated depreciation; investment allowance; capital stock; crowding out; requiring repeat investment; Tax incentives; tax competition; effective tax rates; cost of capital; tax liability; open economy; post-tax rate of return; single tax; taxed investment; corporate tax tax rate; business tax incentives; Tax holidays; Corporate income tax; Tax allowances; Depreciation; Global; Central America; Caribbean (search for similar items in EconPapers)
Pages: 29
Date: 2009-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Causes, benefits, and risks of business tax incentives (2010)
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