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Incentive Targeting, Influence Peddling, and Foreign Direct Investment

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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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  • Kelly Edmiston & Shannon Mudd & Neven Valev, 2000. "Incentive Targeting, Influence Peddling, and Foreign Direct Investment," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0007, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper0007
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    Cited by:

    1. Joseph Amuka & Fidelis Ezeudeka, 2017. "Tax Incentives and the Flow of Foreign Direct Investment to Non-Oil Sector: Empirical," Asian Journal of Social Sciences and Management Studies, Asian Online Journal Publishing Group, vol. 4(1), pages 57-64.

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