Causes, Benefits, and Risks of Business Tax Incentives
IMF Working Papers, January 1, 2009
Source details
- Canonical URL
- Causes, Benefits, and Risks of Business Tax Incentives
Other formats
Bibliographic details
- Authors: Alexander D Klemm
- Published: January 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871685.001
Overview and scope
- Provides an updated overview of tax incentives for business investment.
- Notes that tax competition is likely to be a major force driving countries' tax reforms and discusses tax incentives as a possible response.
- Complements the tax-competition discussion with other arguments for and against tax incentives.
- Includes an illustrative analysis of different incentives using effective tax rates.
- Presents findings from the empirical literature on tax incentives.
- Suggests a matrix of criteria to determine the usefulness of different tax incentives depending on a country's circumstances.
Analytical approaches and tools used
- Illustrative analysis using effective tax rates to compare different incentives.
- Review of theoretical arguments for and against tax incentives.
- Synthesis of empirical literature findings to inform policy guidance.
- Development of a decision matrix (matrix of criteria) mapping incentive usefulness to country-specific circumstances.
Key thematic findings (as reported)
- Tax competition is identified as a major force influencing tax reform choices.
- Tax incentives are positioned as one possible policy response to tax competition.
- Both benefits and risks of business tax incentives are considered through theoretical and empirical lenses.
- Effective tax rate analysis is used as an illustrative device to compare incentive types.
- Empirical literature findings are summarized to inform assessment of incentives’ effectiveness.
- Based on combined theoretical and empirical evidence, a matrix of criteria is proposed to guide the selection and evaluation of tax incentives according to a country's circumstances.