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Incentive Targeting, Influence Peddling, and Foreign Direct Investment

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Author Info
Kelly Edmiston
Shannon Mudd
Neven Valev () (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)

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Abstract

We expand the traditional tax incentive redundancy argument by investigating the implications of targeting incentives primarily to firms that would have invested anyway. Incorporating government revenue constraints, pliable tax officials, endogenous tax liabilities, and firms with heterogeneous before-tax returns, we show that tax incentives, if given to the "wrong" firms, are not only ineffective in stimulating FDI, but may reduce it. Data from countries of the former Eastern Bloc indicates that tax incentive schemes have significantly negative impacts on FDI in countries that poorly target firms.

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Publisher Info
Paper provided by International Studies Program, Andrew Young School of Policy Studies, Georgia State University in its series International Studies Program Working Paper Series, at AYSPS, GSU with number paper0007.

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Length: 25 pages
Date of creation: 01 Sep 2000
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Handle: RePEc:ays:ispwps:paper0007

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Related research
Keywords: Incentive Targeting; Influence Peddling; Foreign Direct Investment;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 1998. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Working Papers 6383, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Mintz, Jack M. & Tsiopoulos, Thomas, 1994. "The effectiveness of corporate tax incentives for foreign investment in the presence of tax crediting," Journal of Public Economics, Elsevier, vol. 55(2), pages 233-255, October. [Downloadable!] (restricted)
  3. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  4. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January. [Downloadable!] (restricted)
  5. James R. Hines, Jr., 1998. ""Tax Sparing" and Direct Investment in Developing Countries," NBER Working Papers 6728, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Marceau, Nicolas & Smart, Michael, 2002. "Corporate Lobbying and Commitment Failure in Capital Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Usher, Dan, 1977. "The economics of tax incentives to encourage investment in less developed countries," Journal of Development Economics, Elsevier, vol. 4(2), pages 119-148, June. [Downloadable!] (restricted)
  8. Mark E. Schaffer & Gerard Turley, 2000. "Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies," William Davidson Institute Working Papers Series 347, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  9. Vito Tanzi & Howell H. Zee, 2000. "Tax Policy for Emerging Markets - Developing Countries," IMF Working Papers 00/35, International Monetary Fund.
  10. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February. [Downloadable!] (restricted)
  11. George Warskett & Stanley Winer & Walter Hettich, 1998. "The Complexity of Tax Structure in Competitive Political Systems," International Tax and Public Finance, Springer, vol. 5(2), pages 123-151, May. [Downloadable!] (restricted)
  12. Leechor, Chad & Mintz, Jack, 1993. "On the taxation of multinational corporate investment when the deferral method is used by the capital exporting country," Journal of Public Economics, Elsevier, vol. 51(1), pages 75-96, May. [Downloadable!] (restricted)
  13. Baltagi, Badi H. & Boozer, Michael A., 1997. "Econometric Analysis of Panel Data," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October. [Downloadable!]
  14. Kelly Edmiston & Shannon Mudd & Neven Valev, 2003. "Tax Structures and FDI: The Deterrent Effects of Complexity and Uncertainty," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 341-359, September.
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