Publication:
How Tax Policy and Incentives Affect Foreign Direct Investment : A Review

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dc.contributor.authorMorrisset, Jacques
dc.contributor.authorPirnia, Neda
dc.date.accessioned2014-08-26T22:01:31Z
dc.date.available2014-08-26T22:01:31Z
dc.date.issued2000-12
dc.description.abstractWith an increasing number of governments competing to attract multinational companies, fiscal incentives have become a global trend that has grown considerably in the 1990s. Poor African countries rely on tax holidays, and import duty exemptions, while industrial Western European countries allow investment allowances, or accelerated depreciation. Have governments offered unreasonably large incentives to entice firms to invest in their countries? The authors review the literature on tax policy, and foreign direct investment, and explore possibilities for research. They observe that tax incentives neither make up for serious deficiencies in a country's investment environment, nor generate the desired externalities. Long-term strategies to improve human, and physical infrastructure - and, where necessary, to streamline government policies and procedures - are more likely than incentives to attract genuine long-term investment. But more recent evidence has shown that when other factors - such as infrastructure, transport costs, and political and economic stability - are more or less equal, the taxes in one location may have a significant effect on investors' choices. This effect is not straightforward, however. It may depend on the tax instrument used by the authorities, the characteristics of the multinational company, and the relationships between the tax systems in the home country, and recipient countries. For example, tax rebates are more important for mobile firms, for firms that operate in multiple markets, and for firms whose home country exempts any profit earned abroad (Canada, France) rather than using tax credit systems (Japan, the United Kingdom, the United States). Even if tax incentives were quite effective in increasing investment flows, the costs might well outweigh the benefits. Tax incentives are not only likely to have a negative direct effect on fiscal revenues, but also frequently create significant opportunities for illicit behavior by tax administrators, and companies. This issue has become crucial in emerging economies, which face more severe budgetary constraints, and corruption than industrial countries do. The authors suggest research in five areas: 1) The eventual non-linear impact of tax rates on the investment decisions of multinational companies. 2) the effect of tax policy on the composition of foreign direct investment (for example, green-field, reinvested earnings, and mergers and acquisitions). 3) The development of new technologies, and global companies that are likely to be more sensitive to, and able to exploit incentives. 4) The need for a global approach to the taxation of multinational companies. 5) The question of whether tax incentives should be directed only at (foreign) investors that make the "right things" (such as environmentally safe products) or more broadly at those that bring jobs, technology transfers, and marketing skills.en
dc.identifierhttp://documents.worldbank.org/curated/en/2000/12/828317/tax-policy-incentives-affect-foreign-direct-investment-review
dc.identifier.doi10.1596/1813-9450-2509
dc.identifier.urihttps://hdl.handle.net/10986/19742
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 2509
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectABATEMENT
dc.subjectACCELERATED DEPRECIATION
dc.subjectACCOUNTING
dc.subjectALLOCATION OF RESOURCES
dc.subjectBIDDING
dc.subjectBILATERAL TRADE
dc.subjectBORROWING
dc.subjectCAPITAL GAIN
dc.subjectCAPITAL TAXES
dc.subjectCITIZENS
dc.subjectCOMPETITIVE MARKETS
dc.subjectCONTRACTUAL ARRANGEMENTS
dc.subjectCORPORATE INCOME TAX
dc.subjectCORPORATE TAXES
dc.subjectCORRUPTION
dc.subjectCREDIT SYSTEMS
dc.subjectDEBT
dc.subjectDEBT FINANCING
dc.subjectDECISION-MAKING
dc.subjectDECISION-MAKING PROCESS
dc.subjectDEPRECIABLE ASSETS
dc.subjectDEPRECIABLE CAPITAL
dc.subjectDEVELOPED COUNTRIES
dc.subjectDIRECT INCOME TAXES
dc.subjectECONOMETRIC ANALYSIS
dc.subjectECONOMIC GROUPINGS
dc.subjectECONOMIC STABILITY
dc.subjectECONOMISTS
dc.subjectEMPIRICAL EVIDENCE
dc.subjectEMPLOYMENT
dc.subjectEVASION
dc.subjectEXPENDITURE
dc.subjectEXPORT PROCESSING ZONES
dc.subjectEXPORTS
dc.subjectEXPROPRIATION
dc.subjectEXTERNALITIES
dc.subjectFINANCIAL RATE OF RETURN
dc.subjectFISCAL
dc.subjectFISCAL INCENTIVES
dc.subjectFISCAL REVENUES
dc.subjectFIXED ASSETS
dc.subjectFOREIGN BORROWING
dc.subjectFOREIGN COMPANIES
dc.subjectFOREIGN DIRECT INVESTMENT
dc.subjectFOREIGN FIRMS
dc.subjectFOREIGN INVESTMENT
dc.subjectFOREIGN INVESTORS
dc.subjectFOREIGN MARKETS
dc.subjectFUTURE RESEARCH
dc.subjectGOVERNMENT OFFICIALS
dc.subjectGOVERNMENT POLICIES
dc.subjectHUMAN CAPITAL
dc.subjectIMPORT DUTY EXEMPTIONS
dc.subjectINCOME
dc.subjectINCOME TAX RATE
dc.subjectINCOME TAXES
dc.subjectINDIRECT CONSUMPTION
dc.subjectINFLATION
dc.subjectINSURANCE
dc.subjectINTEREST COSTS
dc.subjectINTEREST RATES
dc.subjectINVESTMENT CLIMATE
dc.subjectINVESTMENT EXPENDITURES
dc.subjectMARGINAL TAX RATES
dc.subjectMEMBER STATES
dc.subjectMERGERS
dc.subjectMOTIVATIONS
dc.subjectNATURAL ENDOWMENTS
dc.subjectPRODUCTION INPUTS
dc.subjectREGULATORY POLICIES
dc.subjectRESEARCH AGENDA
dc.subjectRETAINED EARNINGS
dc.subjectSTATE INCOME
dc.subjectTAX
dc.subjectTAX ADMINISTRATION
dc.subjectTAX ADMINISTRATIONS
dc.subjectTAX AUTHORITIES
dc.subjectTAX CREDITS
dc.subjectTAX EXEMPTION
dc.subjectTAX INCENTIVES
dc.subjectTAX LAWS
dc.subjectTAX LIABILITIES
dc.subjectTAX POLICY
dc.subjectTAX RATES
dc.subjectTAX REDUCTION
dc.subjectTAX REFORM
dc.subjectTAX REGIME
dc.subjectTAX RETURNS
dc.subjectTAX REVENUES
dc.subjectTAX SYSTEM
dc.subjectTAX SYSTEMS
dc.subjectTAXATION
dc.subjectTECHNOLOGY TRANSFERS
dc.subjectTOTAL OUTPUT
dc.titleHow Tax Policy and Incentives Affect Foreign Direct Investment : A Reviewen
dspace.entity.typePublication
okr.crossref.titleHow Tax Policy and Incentives Affect Foreign Direct Investment: A Review
okr.date.disclosure2000-12-30
okr.date.doiregistration2025-04-10T10:52:13.050904Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2000/12/828317/tax-policy-incentives-affect-foreign-direct-investment-review
okr.globalpracticeGovernance
okr.guid876691468766534050
okr.identifier.doi10.1596/1813-9450-2509
okr.identifier.externaldocumentum000094946_01010905342188
okr.identifier.internaldocumentum828317
okr.identifier.reportWPS2509
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2001/01/20/000094946_01010905342188/Rendered/PDF/multi_page.pdfen
okr.sectorPublic Financial Management
okr.sectorPublic Administration, Law, and Justice
okr.topicEconomic Theory and Research
okr.topicInternational Terrorism and Counterterrorism
okr.topicEnvironmental Economics and Policies
okr.topicGovernance::National Governance
okr.topicPublic Sector Economics and Finance
okr.topicPublic Sector Development
okr.unitForeign Investment Advisory Service, International Finance Corporation
okr.volume1
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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