Publication: Using Tax Incentives to Compete for Foreign Investment : Are They Worth the Costs?
Date
2001
ISSN
Published
2001
Author(s)
Wells, Louis T., Jr.
Allen, Nancy J.
Morisset, Jacques
Pirnia, Neda
Abstract
The book contains complementary essays
on the use of tax incentives, to attract foreign direct
investment (FDI). The first essay presents results of the
authors' original research, and explores FDI, and
issues of tax incentives, in the context of Indonesia. Their
results mostly support the arguments made against
incentives, particularly they find little evidence that when
Indonesia eliminated tax incentives, there was any decline
in the rate of FDI into the country. Similarly, the second
essay surveys the research of others on the same topic, and
pertaining to the same issues discussed in the first essay.
They show that results of other researchers, are generally
consistent with the findings of the research in Indonesia,
notably that tax incentives, neither affect significantly
the amount of direct investment that takes place, nor
usually determine the location to which investment is drawn.
Nevertheless, recent evidence has shown that when factors
such as political, and economic stability, infrastructure,
and transport costs are more, or less equal between
potential locations, taxes may exert a significant impact.
This is evidenced by the growing tax competition in regional
groupings (i.e., the European Union) or, at the sub-regional
level within one country (i.e., the United States). Both
essays provide a basis for much more sophisticated analysis
by policymakers than previously, and, both are important
because they question governments' institutional
arrangements that create agency problems with respect to tax
incentive policies.
Citation
“Wells, Louis T., Jr.; Allen, Nancy J.; Morisset, Jacques; Pirnia, Neda. 2001. Using Tax Incentives to Compete for Foreign Investment : Are They Worth the Costs?. FIAS Occasional Paper;No. 15. © Washington, DC: World Bank and the International Finance Corporation. http://openknowledge.worldbank.org/entities/publication/cc4f9db3-e4b6-51fb-8298-d2a791cdfa78 License: CC BY 3.0 IGO.”