Causes, Benefits, and Risks of Business Tax Incentives

28 Pages Posted: 11 Mar 2009

See all articles by Alexander Klemm

Alexander Klemm

International Monetary Fund (IMF)

Date Written: Janurary 2009

Abstract

This paper provides an updated overview of tax incentives for business investment. It begins by noting 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 other 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.

Keywords: Tax incentives, Foreign direct investment, Tax rates, Tax policy

Suggested Citation

Klemm, Alexander, Causes, Benefits, and Risks of Business Tax Incentives (Janurary 2009). IMF Working Paper No. 09/21, Available at SSRN: https://ssrn.com/abstract=1356449

Alexander Klemm (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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