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Prepared by Jingqing Chai and Rishi Goyal.
However, firms operating in tourism and financial services (including offshore), which were already benefiting from very generous concessions, reported that tax concessions were important.
The six member countries of the Eastern Caribbean Currency Union (ECCU) studied in this chapter are Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.
Hotel room capacity increased sharply in the wider Caribbean, while hurricane-related damage to capacity in some ECCU countries, such as Antigua and Barbuda, was significant.
It could also be that concessions are being used increasingly for social, rather than productive, purposes. The absence of data precludes an evaluation of this hypothesis.
Although data on revenue forgone in other countries are generally not known, a recent study on the Philippines estimated revenue forgone at 1–2 percent of GDP annually (see Easson, 2004).
Note that the revenue losses are due not only to concessions granted but also to leakages from administrative weaknesses.
National accounts data on the income side are not available for the ECCU member countries. The corporate income tax base is assumed to be 25 percent of GDP, in line with the number for Jamaica.
See World Bank (2005). Even though the relative ranking of the ECCU region has fallen over time, the share of FDI in GDP has remained high, reflecting its natural endowment as a prime tourist destination and the small size of its economies.
The statistical significance of the CIT rate is driven by three “tax haven” countries. When these countries are excluded from the estimation, the CIT has the correct sign, but is statistically insignificant. Instead, the FDI restrictions index and the ECCU fixed effect become statistically more significant.