Tax Concessions and Foreign Direct Investmentin the Eastern Caribbean Currency Union

35 Pages Posted: 18 Dec 2008

See all articles by Rishi Goyal

Rishi Goyal

International Monetary Fund (IMF)

Jingqing Chai

UNICEF

Date Written: November 2008

Abstract

Tax concessions have been employed as a central component of the development strategy in the small island states comprising the Eastern Caribbean Currency Union. This paper compares the costs of concessions in terms of revenues forgone with the benefits in terms of increased foreign direct investment. The costs are very large, while the benefits appear to be marginal at best. Forgone tax revenues range between 9½ and 16 percent of GDP per year, whereas total foreign direct investment does not appear to depend on concessions. A rethinking of the use of concessions in the region is needed urgently.

Keywords: Foreign direct investment, Tax policy, Eastern Caribbean Currency Union, Investment incentives, Corporate taxes, Developing countries, Import tariffs

Suggested Citation

Goyal, Rishi and Chai, Jingqing, Tax Concessions and Foreign Direct Investmentin the Eastern Caribbean Currency Union (November 2008). IMF Working Paper No. 08/257, Available at SSRN: https://ssrn.com/abstract=1316725

Rishi Goyal (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jingqing Chai

UNICEF ( email )

P. O. Box 4884
New York, NY
United States

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