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The Effectiveness of Tax Incentives in Attracting Investment : Panel Data Evidence from the CFA Franc Zone

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dc.contributor.authorVan Parys, Stefan
dc.contributor.authorJames, Sebastian
dc.date.accessioned2012-03-30T07:30:44Z
dc.date.available2012-03-30T07:30:44Z
dc.date.issued2010
dc.description.abstractIn this paper, we investigate to what extent tax incentives are effective in attracting investment in Sub-Saharan Africa. We test the neo-classical investment theory prediction that tax incentives, by lowering the user cost of capital, raise investment. Next to tax incentives, we also estimate the impact on investment of other investment climate variables that are under direct control of the government, such as the transparency and complexity of the tax system, and the legal protection of foreign investors. In developing countries, these variables might be as important as or even more important than the tax variables themselves. Therefore, we analyze the policy changes in tax incentives and in the other investment climate variables for 12 CFA Franc Zone countries over the period 1994-2006. Because of their common currency (the CFA Franc) and common language (French) these countries constitute an exceptional basis of comparison to evaluate their 'policy experiments'. The use of panel data econometrics with fixed country and year effects allows us to isolate the impact of the policy changes on investment, as if it were a difference in differences analysis with multiple policy changes. We find no robust positive relationship between tax holidays and investment in the CFA Franc zone. However, increasing the number of legal guarantees for foreign investors and reducing the complexity of the tax system helps to attract investment.en
dc.identifier.citationInternational Tax and Public Finance
dc.identifier.issn09275940
dc.identifier.urihttps://hdl.handle.net/10986/4993
dc.language.isoEN
dc.relation.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/igo
dc.rights.holderWorld Bank
dc.subjectCapital
dc.subjectInvestment
dc.subjectCapacity E220
dc.subjectFiscal Policy E620
dc.subjectInternational Investment
dc.subjectLong-term Capital Movements F210
dc.subjectMultinational Firms
dc.subjectInternational Business F230
dc.subjectTaxation, Subsidies, and Revenue: General H200
dc.subjectEconomic Development: Financial Markets
dc.subjectSaving and Capital Investment
dc.subjectCorporate Finance and Governance O160
dc.subjectFiscal and Monetary Policy in Development O230
dc.titleThe Effectiveness of Tax Incentives in Attracting Investment : Panel Data Evidence from the CFA Franc Zoneen
dc.title.alternativeInternational Tax and Public Financeen
dc.typeJournal Articleen
dc.typeArticle de journalfr
dc.typeArtículo de revistaes
dspace.entity.typePublication
okr.doctypeJournal Article
okr.externalcontentExternal Content
okr.identifier.externaldocumentum1664
okr.journal.nbpages400-429
okr.language.supporteden
okr.peerreviewAcademic Peer Review
okr.region.geographicalAfrica
okr.relation.associatedurlhttp://dx.doi.org/10.1007/s10797-010-9140-1
okr.relation.associatedurlhttp://search.ebscohost.com/login.aspx?direct=true&db=eoh&AN=1136361&site=ehost-live
okr.relation.associatedurlhttp://www.springerlink.com/link.asp?id=102915
okr.volume17
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