United nations of tax incentives

parts of the same country. In other cases, the incentives are offered 
by the central Government, often as part of its regional development 
policy, to promote investment in less developed regions of the country 
or in areas of high unemployment.
One benefit of foreign direct investment is the creation of 
new employment opportunities and, not surprisingly, incentives 
are frequently provided with the express intent of encouraging job 

---

22
Design and Assessment of Tax Incentives
creation. Policymakers could provide for tax incentives for investment 
in regions of high unemployment or tie the tax incentive directly to 
employment, with the creation of a stipulated number of new jobs as a 
qualifying condition for the tax holiday or other incentive.
Foreign direct investment often results in the transfer of 
technology. Even critics of tax incentives concede that they may be 
useful for promoting activities such as research and development, if 
only as a way to correct market imperfections. Countries attempt 
to attract technologically advanced investment in several ways: (a) 
by targeting incentives at technologically advanced sectors; (b) by 
providing incentives for the acquisition of technologically advanced 
equipment; and (c) by providing incentives for carrying out research 
and development activities.
The experience of many developing countries is that export 
promotion and the attraction of export-oriented investment is the 
quickest and most successful route to economic growth. It is therefore 
hardly surprising that competition to attract such investment is 
especially fierce, and investment incentives are frequently targeted 
at export-oriented production. Incentives targeted specifically at 
export-oriented investment may be more effective than other tax 
incentives, due to the higher degree of mobility of such investment.