Tax Concessions and Foreign Direct Investment in the Eastern Caribbean Currency Union

Author/Editor:

Jingqing Chai ; Rishi Goyal

Publication Date:

November 1, 2008

Electronic Access:

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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:

Tax concessions have been employed as a central component of the development strategy in the small island states comprising the Eastern Caribbean Currency Union. This paper compares the costs of concessions in terms of revenues forgone with the benefits in terms of increased foreign direct investment. The costs are very large, while the benefits appear to be marginal at best. Forgone tax revenues range between 9½ and 16 percent of GDP per year, whereas total foreign direct investment does not appear to depend on concessions. A rethinking of the use of concessions in the region is needed urgently.

Series:

Working Paper No. 2008/257

Subject:

Consumption taxes Corporate income tax Foreign direct investment Tax holidays Tax incentives

Frequency:

Monthly

English

Publication Date:

November 1, 2008

ISBN/ISSN:

9781451871159/1018-5941

Stock No:

WPIEA2008257

Pages:

33

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