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Are Preferential Tax Holidays Dynamic Inconsistent?

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  • Kaushal Kishore

    (Department of Economics, University of Pretoria)

Abstract

In a two-period dynamic model, where a single country is trying to attract large investors endowed with capital with varying rate of returns, we show that the result of Kishore and Roy (2014), that a country has incentives to commit to a non-preferential regime to circumvent dynamic inconsistency problem does not hold. Tax revenue of the government may be higher under a preferential regime compared to a non-preferential regime.

Suggested Citation

  • Kaushal Kishore, 2016. "Are Preferential Tax Holidays Dynamic Inconsistent?," Working Papers 201630, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201630
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    References listed on IDEAS

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    5. Kishore, Kaushal & Roy, Santanu, 2014. "Dynamic inconsistency and non-preferential taxation of foreign capital," Economics Letters, Elsevier, vol. 124(1), pages 88-92.
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    More about this item

    Keywords

    Tax Competition; Non-preferential regime; Dynamic Inconsistency; Rational Expectations;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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