Click here for search results
Do tax policies stimulate investment in physical and research and development capital?, Volume 1
 
Author:Baffes, John; Shah, Anwar; Collection Title:Policy, Research, and External Affairs working papers ; no. WPS 689. Public economics
Date Stored:1991/05/01Document Date:1991/05/31
Document Type:Policy Research Working PaperLanguage:English
Major Sector:Public Administration, Law, and JusticeReport Number:WPS689
Sub Sectors:Public Financial ManagementSubTopics:Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Banks & Banking Reform; Public Sector Economics
Volume No:1  

Summary: Tax policy instruments are often used to stimulate private investment in developing countries. But researchers have not explored how well such policies have met stated policy objectives. To evaluate the cost-effectiveness of tax incentives for industrial and technological development, the authors specify a dynamic production structure model with endogenous capacity utilization. Taxes and incentives are part of the user cost of capital, and thereby affect producer decisions about choice of inputs, technology, and capital accumulation. Empirical estimates of this model allow one to infer both the impact of investment incentives and their implications for revenues foregone by the government. The model results yield an objective, empirically derived cost-benefit ratio that is superior to standard cost-benefit analysis and King-Fullerton type marginal effective tax rate analysis. The authors apply this model empirically for Pakistan. The results suggest that the investment tax credit has not been effective at stimulating investments in Pakistan. The private investment stimulated has been less than the government revenues foregone. Allowing full expensing for research and development expenditures, on the other hand, has been cost effective.

Official Documents
Official, scanned versions of documents (may include signatures, etc.)
File TypeDescriptionFile Size (mb)
PDF 30 pagesOfficial version*2.1 (approx.)
TextText version**
How To Order

* The official version is derived from scanning the final, paper copy of the document and is the official,
archived version including all signatures, charts, etc.
** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
It is provided solely to benefit users with slow connectivity.



Permanent URL for this page: http://go.worldbank.org/30S59MFK80