IMF Working Papers

Causes, Benefits, and Risks of Business Tax Incentives

By Alexander D Klemm

January 1, 2009

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Alexander D Klemm. Causes, Benefits, and Risks of Business Tax Incentives, (USA: International Monetary Fund, 2009) accessed December 26, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Corporate income tax, Depreciation, National accounts, Tax allowances, Tax holidays, Tax incentives, Taxes

Keywords: Accelerated depreciation, Business tax incentives, Capital stock, Caribbean, Central America, Corporate income tax, Corporate tax tax rate, Cost of capital, Crowding out, Depreciation, Effective tax rates, Global, Investment allowance, Open economy, Post-tax rate of return, Requiring repeat investment, Single tax, Tax allowances, Tax competition, Tax holidays, Tax incentives, Tax liability, Taxed investment, WP

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2009/021

  • Stock No:

    WPIEA2009021

  • ISBN:

    9781451871685

  • ISSN:

    1018-5941

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