CBS/COFFERS PhD fellow Saila Stausholm went to the IMF in Washington, D.C. to give a presentation about her paper on tax incentives, entitled “Give us a break: the impact of tax holidays on developing countries”. Her research looks at the phenomenon of tax holidays and its effect on developing countries in terms of economic and social outcomes. In the presentation she showed how new data documents a recent increase in the use of tax holidays throughout all four regions surveyed: Latin America, Asia, Africa and the Caribbean. She presented her finding that the effect of tax holidays on FDI is negligible and decreasing, and importantly, that the attracted FDI does not translate into neither real capital accumulation nor economic growth. Her research shows that tax holidays are negatively correlated with tax revenues, and as revenues go down, spending on education decreases. This indicates that there is a race to the bottom when it comes to tax incentives and the competition for investment, which may act as a transfer mechanism from the poor to the pockets of corporations.
The animated map shows how the use of tax holidays changes over the course of the period surveyed – red indicating that the country offers a tax holiday, and green that they do not (white that they are not in the sample). There is a lot of variation over time and across regions, however, over the last 5 years the use of tax holidays has been increasing in all parts of the developing world.