Empirical Evidence On The Effects Of Tax Incentives

Date Added: Jul 2009
Format: PDF

This paper considers two empirical questions about tax incentives: (1) are incentives used as tools of tax competition and (2) how effective are incentives in attracting investment? To answer these, the author prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985 - 2004. Using spatial econometrics techniques for panel data to answer the first question, the author finds evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax rate.