Tax Competition, Foreign Direct Investments and Growth: Using the Tax System to Promote Developing Countries
Yoram Y. Margalioth
Tel Aviv University - Buchmann Faculty of Law
Virginia Tax Review, Vol. 23, Forthcoming
I propose to use tax incentives to attract foreign direct investments (FDI) to developing countries to promote growth, and explain what practical and conceptual changes in the tax systems of developing as well as developed countries (introducing a notion of inter-nation equity) should be made to make this work. Such a proposal could be justified on equity (redistribution) as well as efficiency grounds, being an exception to the usual tradeoff between the two considerations.
The motivation for writing this paper stems from the following facts: (a) in spite of transfers of well over $1 trillion from developed to developing countries over the past 50 years, the gap is widening as many poor countries fail to experience economic growth; (b) according to "the new growth theories" endogenous technological progress is the engine of growth; (c) nevertheless, the standard advice of international bodies to developing countries continues to be limited to: more savings and more schooling; (d) nearly all of the world's technological progress originates in about 20 leading countries; (e) foreign direct investments (FDI) could transfer technology from developed to developing countries that could have spillover effects promoting growth in developing countries; (f) little implementation of the "new growth theories" was done in the legal literature; (g) no implementation was done in the field of law and development and tax policy.
Number of Pages in PDF File: 44
Keywords: Tax Incentives, Law and Development, Growth, Foreign Direct Investment, Tax Competition
JEL Classification: F23, H25, H32, K34, O23Accepted Paper Series
Date posted: November 21, 2003
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