United nations of tax incentives

 3 
the Organization for Economic 
Cooperation and Development (OECD)
 4 
and the World Bank
 5 
have 
produced useful reports that provide guidance to policymakers on 
whether to adopt tax incentives and how best to design them. The 
empirical evidence on the cost-effectiveness of using tax incentives 
to increase investment is inconclusive. While economists have made 
significant advances in determining the correlation between increased 
tax incentives and increased investment, it is challenging to determine 
whether tax incentives caused the additional investments. This is partly 
because it is difficult to determine the amount of marginal investment 
associated with the tax benefit; that is to say, the investments that 
would not otherwise have occurred “but for” the tax benefits. While 
foreign investors often claim that tax incentives were necessary for the 
investment decision, it is not easy to determine the validity of the claim. 
Governments often adopt tax incentives in a package with other reforms 
designed to improve the climate for investment, making it difficult to 
determine the portion of new investment that is attributable to tax 
3 
See, for example, George E. Lent, “Tax Incentives for Investment in Devel-
oping Countries”, 
IMF Staff Papers
, vol. 14, No. 2 (Washington, D.C., IMF, 1967); 
Howell H. Zee, Janet Gale Stotsky and Eduardo Ley, “Tax Incentives for Business 
Investment: A Primer for Tax Policy Makers in Developing Countries”, International 
Monetary Fund (Washington, D.C., IMF, 2001); Alexander Klemm, “Causes, Benefits 
and Risks of Business Tax Incentives”, International Monetary Fund (Washington, 
D.C., IMF, 2009); and David Holland and Richard J. Vann, “Income Tax Incentives 
for Investment”, in 
Tax Law Design and Drafting
, Victor Thuronyi, ed., vol. 2 (Wash-
ington, D.C., IMF, 1998).
4 
See, for example, Organization for Economic Cooperation and Development, 
Tax Effects on Foreign Direct Investment: Recent Evidence and Policy Analysis
, Tax 
Policy Study No. 17 (2007); Organization for Economic Cooperation and Develop-
ment, “Tax Incentives for Investment: A Global Perspective: experiences in MENA 
and non-MENA countries”, in 
Making Reforms Succeed: Moving Forward with the 
MENA Investment Policy Agenda
(Paris: OECD, 2008).
5 
See, for example, Robin W. Boadway and Anwar Shah, “Perspectives on the 
Role of Investment Incentives in Developing Countries”, World Bank (Washing-
ton, D.C.), World Bank, 1992); Sebastian James, “Effectiveness of Tax and Non-Tax 
Incentives and Investments: Evidence and Policy Implications”, World Bank Group 
(Washington, D.C., World Bank Group, 2013); Sebastian James, “Incentives and 
Investments: Evidence and Policy Implications”, World Bank Group (Washington, 
D.C., World Bank Group, 2009); and Alex Easson and Eric M. Zolt, “Tax Incentives”, 
World Bank Institute (Washington, D.C., World Bank Group, 2002), available from 
http://siteresources.worldbank.org/INTTPA/Resources/EassonZoltPaper.pdf.

---

5