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Do Corporate Tax Concessions Really Matter for the Success of Free Economic Zones?

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  • Chang Nam

    ()

  • Doina Radulescu

Abstract

Not only a large number of developing countries but also transition economies have established free economic zones (FEZs) with the aim of attracting foreign capital by providing tax incentives, creating employment opportunities, and promoting exports and regional development. Tax investment promotion schemes include profit tax exemption, free or accelerated depreciation, investment tax allowance, subsidy for investment costs, etc., the effects of which on firms’ investment decisions can be compared based on the net present value model. This study suggests that even a low corporate tax rate combined with generous depreciation rules does not provide incentives for investors when the inflation rate is high. A case study on Najin–Sonbong FEZ in North Korea delivers a wide range of more crucial economic and political reasons why such a development project can fail, although tax concessions offered there are more favourable than those in China and other Asian nations. Copyright Springer 2004

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File URL: http://hdl.handle.net/10.1007/s10644-004-6831-6
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Bibliographic Info

Article provided by Springer in its journal Economic Change and Restructuring.

Volume (Year): 37 (2004)
Issue (Month): 2 (06)
Pages: 99-123

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Handle: RePEc:kap:ecopln:v:37:y:2004:i:2:p:99-123

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Web page: http://www.springerlink.com/link.asp?id=113294

Related research

Keywords: free economic zone; investment decision; net present value; tax concessions;

References

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  1. Jamil Tahir, 1999. "An Assessment of Free Economic Zones (FEZs) in Arab Countries: Performance and Main Features," Working Papers 9926, Economic Research Forum, revised Sep 1999.
  2. Chang Woon Nam & Doina Maria Radulescu, 2003. "The Role of Tax Depreciation for Investment Decisions: A Comparison of European Transition Countries," CESifo Working Paper Series 847, CESifo Group Munich.
  3. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 1999. "Corporate Tax in Italy: An Analysis of the 1998 Reform," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(3/4), pages 335-, July.
  4. Leslie E. Papke, 1993. "What Do We Know about Enterprise Zones?," NBER Chapters, in: Tax Policy and the Economy, Volume 7, pages 37-72 National Bureau of Economic Research, Inc.
  5. Peter S. Fisher, 1997. "Tax and spending incentives and enterprise zones," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 109-138.
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Cited by:
  1. Chang Nam & Doina Radulescu, 2007. "Effects of Corporate Tax Reforms on SMEs’ Investment Decisions under the Particular Consideration of Inflation," Small Business Economics, Springer, vol. 29(1), pages 101-118, June.

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