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Business and Economics > Corporate Taxation

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Cover IMF Working Papers
Unpleasant Surprises? Elections and Tax News Shocks
Mr. Antonio David
and
Can Sever
Unanticipated changes in tax policy are likely to have different macroeconomic effects compared to anticipated changes due to several mechanisms, including fiscal foresight and policy uncertainty. It is therefore important to understand what drives such policy surprises. We explore the nature of unanticipated tax policy changes by focusing on a political economy determinant of those events, namely the timing of elections. Using monthly data for 22 advanced economies and emerging markets over the period 1990-2018, we show that implementation lags tend to be significantly longer for tax policy change announcements that are made during the pre-election periods, thereby leading to a lower likelihood of “tax news shocks”. We also find that implementation lags become much shorter for tax policy changes that are announced in the aftermath of elections, generating more frequent tax news shocks. This pattern remains similar for different tax measures or types of taxes. The findings are robust to a number of checks, including alternative definitions of tax news shocks, or to controlling for various economic and institutional factors.
Keywords:
Tax Shocks; Electoral Cycles; Political Economy; news shock; implementation lag; election period; change announcement; tax policy policy change; Probit models; Income tax systems; Consumption taxes; Corporate income tax; Global
Cover IMF Working Papers
Empirical Evidenceon the Effects of Tax Incentives
Mr. Alexander D Klemm
and
Stefan van Parys
This paper considers two empirical questions about tax incentives: (1) are incentives used as tools of tax competition and (2) how effective are incentives in attracting investment? To answer these, we prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985–2004. Using spatial econometrics techniques for panel data to answer the first question, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax rate. We find no evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower corporate income tax rates and longer tax holidays are effective in attracting FDI, but not in boosting gross private fixed capital formation or growth.
Keywords:
WP; economic growth; CIT rate; GMM estimator; system GMM result; Tax incentives; tax competition; investment; tax variable; investment allowance; system GMM estimation result; difference GMM estimator; Tax holidays; Corporate income tax; Foreign direct investment; Estimation techniques; Sub-Saharan Africa; Asia and Pacific; Caribbean; Global