Do tax incentives matter for investment? A literature review

• Authors: Munongo Simon , Akanbi Olusegun Ayo , Robinson Zurika
• Languages of publication: EN

Abstracts

EN

The effectiveness of tax incentives in attracting FDI remains one of the unsettled concepts in public finance. The importance of tax incentives in attraction of internationally mobile capital differs with the jurisdiction of the study and the methodology used in drawing conclusions. This study in reviewing both theoretical and empirical literature seeks to establish the merits and demerits of tax incentives. This is because though they receive a lot of criticism tax incentives continue to be used in most economies. Most of the empirical studies that this study explored concluded that though tax incentives might be important in attracting FDI they are more effective when combined with other non-tax factors. Macroeconomic conditions, infrastructure and strong institutions were found to be important non-tax factors that improve the attractiveness of an economy to FDI. The major weaknesses of using taxes in attracting FDI were discussed using the tax competition and tax harmonisation framework. Here it was noted that the use of tax incentives to attract FDI might improve the welfare of individuals in the jurisdiction that apply the incentives, but have external cost implications for residents in other competing jurisdictions that do not adopt tax incentives.

Keywords

EN

Tax incentives; public finance; foreign direct investment

Discipline

• ECONOMICS: ECONOMICS

• Publisher: Prague Development Center, Czech Republic
• Journal: Business and Economic Horizons
• Year: 2017
• Volume: Volume 13
• Issue: Issue 2
• Pages: 152-168

Dates

published

2017-07-20

Contributors

author

Munongo Simon

• Department of Economics, Great Zimbabwe University

author

Akanbi Olusegun Ayo

• Department of Economics, University of South Africa

author

Robinson Zurika

• Department of Economics, College of Economic & Management Sciences, South Africa

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