United nations of tax incentives

part of the general tax structure and those that provide special treatment. 
This distinction will become more important when countries become 
6 
See, generally, Richard M. Bird and Eric M. Zolt, “Tax Policy in Emerging 
Countries”, in 
Environment and Planning C: Government and Policy
, vol. 26 (UCLA 
School of Law, 2008); Richard M. Bird, “Tax Incentives for Investment in Developing 
Countries”, in 
Fiscal Reform and Structural Change in Developing Countries
, Guill-
ermo Perry, John Whalley and Gary McMahon, eds., vol. 1 (London: Canada: Mac-
millan in association with the International Development Research Centre, 2000).

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Design and Assessment of Tax Incentives
limited in their ability to adopt targeted tax incentives. For example, a 
country can provide a 10 per cent corporate tax rate for income from 
manufacturing. This low tax rate can be considered simply an attractive 
feature of the general tax structure as it applies to all taxpayers (domestic 
and foreign) or it can be seen as a special tax incentive (restricted to 
manufacturing) in the context of the entire tax system.
Tax incentives can also be defined in terms of their effect on 
reducing the effective tax burden for a specific project.
 7 
This approach 
compares the relative tax burden on a project that qualifies for a tax 
incentive to the tax burden that would be borne in the absence of a 
special tax provision. This approach is useful in comparing the relative 
effectiveness of different types of tax incentives in reducing the tax 
burden associated with a project.
Commentators contend tax incentives may now play a larger 
role in influencing investment decisions than in past years. Several 
factors explain why tax considerations may have become more 
important in investment decisions.
 8 
First, tax incentives may be more 
generous now than in past years. The effective reduction in tax burden 
for investment projects may be greater than in the past, as tax holiday 
periods increase from 2 years to 10 years or the tax relief provided in 
certain enterprise zones comes to include trade taxes as well as income 
taxes. Second, over the past several decades there has been substantial 
trade liberalization and greater capital mobility. As non-tax barriers 
decline, the significance of taxes as an important factor in investment 
decisions increases. Third, business has changed in many ways. Firms 
have made major changes in organizational structure, production and 
distribution methods and the types of products being manufactured 
and sold. Highly mobile services and intangibles are a much higher 
portion of cross-border transactions than in past years.
Fewer firms now produce their products entirely in one 
country. Many of them contract out to third parties (either unrelated 
7 
See 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).
8 
See Alex Easson, “Tax Incentives for Foreign Investment, Part I: Recent Trends 
and Countertrends”, 
Bulletin for International Fiscal Documentation
, vol. 55. (2001).

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