Providing Incentives for Investment : Advice for policymakers in developing countries
Are tax incentives effective at attracting investment? Or are they a waste of resources? The answer depends on the policies used and the sectors where investment is sought. This note consolidates the policy implications of the latest research by the World Bank Group's investment climate advisory services on the efficacy of investment incentives. The research finds that such incentives are ineffective where investment climates are weak, and they cannot compensate for such deficiencies. Moreover, even where incentives are effective in attracting investment, they have significant costs. When incentives are clearly ineffective, political considerations often drive their continued use. This note identifies best practices for incentive policy and administration and provides a framework for analyzing the likely effectiveness of investment incentives under different conditions and in different types of countries.
| Summary: | Are tax incentives effective at
attracting investment? Or are they a waste of resources? The
answer depends on the policies used and the sectors where
investment is sought. This note consolidates the policy
implications of the latest research by the World Bank
Group's investment climate advisory services on the
efficacy of investment incentives. The research finds that
such incentives are ineffective where investment climates
are weak, and they cannot compensate for such deficiencies.
Moreover, even where incentives are effective in attracting
investment, they have significant costs. When incentives are
clearly ineffective, political considerations often drive
their continued use. This note identifies best practices for
incentive policy and administration and provides a framework
for analyzing the likely effectiveness of investment
incentives under different conditions and in different types
of countries. |
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