Abstract
This paper provides an updated overview of tax incentives for business investment. It argues that tax competition is likely to be a major force driving countries’ tax reforms, and discusses tax incentives as a possible response to this. This is complemented by more detailed arguments for and against tax incentives, and by an illustrative analysis of different incentives using effective tax rates. Findings from the empirical literature on tax incentives are also presented. Based on the overview of theoretical and empirical findings, the paper then suggests a matrix of criteria to determine the usefulness of different tax incentives depending on a country’s circumstances.
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The views expressed in this paper are my own and should not be attributed to the IMF. I wish to thank Philip Daniel, Mario Mansour, John Norregaard, Emil Sunley, Stefan Van Parys, and two anonymous referees for helpful comments.
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Klemm, A. Causes, benefits, and risks of business tax incentives. Int Tax Public Finance 17, 315–336 (2010). https://doi.org/10.1007/s10797-010-9135-y
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DOI: https://doi.org/10.1007/s10797-010-9135-y