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- Publisher
- Springer Journals
- Copyright
- Copyright © 2011 by Springer Science+Business Media, LLC
- Subject
- Economics; Public Finance; Business Taxation/Tax Law; Public Finance
- ISSN
- 0927-5940
- eISSN
- 1573-6970
- DOI
- 10.1007/s10797-011-9194-8
- Publisher site
- See Article on Publisher Site
Abstract
This paper considers two empirical questions about tax incentives: (i) are incentives used as tools of tax competition and (ii) how effective are incentives in attracting investment? To answer these, we 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, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax (CIT) rate. We find no robust evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower CIT rates and longer tax holidays are effective in attracting FDI in Latin America and the Caribbean but not in Africa. None of the tax incentives is effective in boosting gross private fixed capital formation.
Journal
International Tax and Public Finance – Springer Journals
Published: Sep 13, 2011