78586 Promoting Growth in the Caribbean: Tax Incentives in Theory and in Practice June 2013 1 Authors: This material was prepared by By Martin Bes, World Bank Consultant, in collaboration with Daniel Alvarez-Estrada, Senior Public Sector Specialist, LCSPS, World Bank. The report benefited from comments received from Alberto Barreix (Inter-American Development Bank), Andrea Gallina, Christine M. Richaud, McDonald P. Benjamin, Kathy Lalazarian, and Thomas A. Vis (World Bank). The Caribbean Knowledge Series is an occasional series that presents World Bank knowledge in an accessible format. It is meant to assist knowledge sharing across the region and trigger policy dialogue on topics relevant for the Caribbean This note was prepared to support the participatory policy dialogue in the context of the Caribbean Growth Forum (CGF). The CGF is an initiative facilitated by the Compete Caribbean Program, the Inter-American Development Bank, the World Bank and the Caribbean Development Bank, with the support of the Canadian International Development Agency, the United Kingdom’s Agency for International Development, CARICOM Secretariat, the University of the West Indies, the European Union and Caribbean Export. It aims to facilitate a multi-stakeholder dialogue to identify practical solutions for the growth challenge in the Caribbean. To learn more about the CGF methodology and progress in each Caribbean country visit: http://caribgrowth.competecaribbean.org/ Disclaimer: The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Visit the entire “Caribbean Knowledge Series” collection at: http://worldbank.org/lac Design & Concept by Room Grupo Creativo | www.room.com.do Cover Photo: Shutterstock 2 3 Promoting Growth in the Caribbean: Tax Incentives in theory and in practice Introduction 1. Recent economic developments in the selected group of Caribbean The recent international financial crisis dealt a countries hard blow to the region’s growth prospects, being reflected in reduced demand for financial services While the Caribbean and Latin American and tourism as well as falling remittances. This countries included in this Policy Note share many was combined in some cases with home grown cultural, historical, economic and geographic macroeconomic imbalances and the need to characteristics, they pose some striking face the costs of financial sector bailouts in other differences as well. Most of the countries involved countries. Counter cyclical policy response has are island states and all are vulnerable to natural been limited, as countries do not enjoy sufficient disasters. They are also small countries in terms of fiscal space and debt levels in some of them are territory and population, though there are outliers at worrisome levels. More recently, policymakers regarding both variables. Guyana and Suriname, have indicated the need to explore the use of tax two countries located in South America have large incentives in order to foster much needed private if sparsely populated territories. With regards to investment. This Policy Note analyzes the issues population, the Dominican Republic and Haiti have associated with the use of tax incentives and over 10 million inhabitants each, overshadowing reviews the challenges faced by the region, which the rest of the countries being considered. Living has had a not altogether successful experience in standards are high in The Bahamas, Barbados and controlling tax expenditures. Trinidad and Tobago as measured by the UNDP’s annual Human Development Report. With the The Policy Note is organized as follows. The exception of Haiti that borders the low-end of first section explores the diverse nature of the human development indicators, the rest of the Caribbean and Latin American group of countries countries’ rank at the medium human development referred to in this note: The Bahamas, Barbados, level. Belize, Dominican Republic, Guyana, Haiti, Jamaica, Suriname and Trinidad and Tobago. This Tourism, financial services and natural resources is followed by a word of caution regarding the are the dominant economic activities. The emphasis on factor accumulation in explaining Bahamas and Barbados are specialized in high- growth, dampening beforehand any unrealistic end tourism and financial services while Belize, expectations regarding growth promoting tax Guyana, Suriname and Trinidad and Tobago are incentives. resource-based economies (oil and gas, minerals, agriculture and forestry). The Dominican Republic A brief analytical review of the main direct and and Jamaica have strong tourist sectors as well as indirect tax instruments is included in section significant mining activity and some agriculture. 3. Finally, while studies of tax expenditures in Haiti is a special case as political instability and Caribbean economies are not infrequent, very natural shocks have undermined economic little empirical work has been carried out in the performance over the past four decades. region regarding the role of tax incentives in promoting investment and the latter’s effect on Diversity is also a feature when considering per growth. Section 5 will then review some country capita GDP. With values ranging $17,000 to $23,500 experience with provision of tax relief. A brief set of US dollars The Bahamas, Trinidad and Tobago and recommendations closes the document. Barbados boast the highest values of per capita GDP among the emerging markets of the Western Hemisphere. At the other end of the spectrum is Haiti, with a per capita GDP of around $830 US 4 dollars. Belize, the Dominican Republic, Guyana A logical extension of this analysis has been to and Jamaica are low middle-income countries, in examine the determinants of factor accumulation a range of $4,000 to $6,000 US dollars per year, and innovation, including the role played by tax while Suriname’s per capita GDP will be in the policy. Taxes will affect the labor force in many neighborhood of $9,500 US dollars in 2013. ways. For example a high personal income tax rate will discourage people from working while tax With the exception of the Dominican Republic and credits for education may encourage investment to a lesser extent The Bahamas, fiscal revenue is at in human capital and therefore a more productive the high end for emerging economies, in the range work force. The same is true regarding physical of 24% to 35% of GDP for the rest of these countries. capital. Higher corporate income taxes tend Taxes and social security systems provide the to discourage additional investment while tax bulk of government resources although natural incentives will, all else being equal, encourage resources and grants represent a significant part of capital formation. Likewise, while tax policy cannot fiscal revenues in the cases of Trinidad and Tobago determine innovation it can stimulate expenditures and Haiti respectively. Public expenditure is also in research and development that may lead to high for emerging economies, in the range of 25% innovation. to 40% of GDP, with the exception again of the Dominican Republic where it hovers around 18%. It would however, be a mistake to conclude that all Overall deficits for all countries will be in the range that is needed to increase economic growth is the of 2% to 6% of GDP in 2013. Public Debt is a matter right combination of tax breaks that will provide of concern for some countries. It is in a range of 55% stimulus for factor accumulation. Empirical studies to 82% of GDP in The Bahamas, Barbados, Belize cited in Easterly and Levine (2001) show that factor and Guyana and it is especially high in Jamaica, accumulation only explains around 50% of per over 140% of GDP. capita growth in OECD countries and 65% in LA countries while the rest is explained by Total Factor The greatest impact of the international financial Productivity, a residual of which economists don’t crisis was felt in the service oriented economies as yet have an adequate understanding of (Prescott well as those that received significant remittances (1998)). from their migrants. Terms of trade shocks from higher energy and food prices compounded their Without denying the importance of factor stress. However even Trinidad and Tobago, an oil accumulation, economists have increasingly and gas exporter, was not immune to the crisis placed a greater emphasis on the role played as it had to rescue a large financial conglomerate by economic policies in setting a framework in 2009. This has translated in low growth, which conducive for growth, productivity and innovation. has affected the non-resource economies for the An initial set of policies considered are openness better part of the decade. to international trade, sound fiscal management and financial development. The point made is that Rigid expenditures patterns and significant deficits more often than not structural reform may unleash have meant there has been little fiscal space to the growth potential of a country in ways barely finance expansionary policies domestically. High imagined by tax measures enacted to promote debt levels have further restricted this option investments. except in the cases of Suriname and Trinidad and Tobago, countries that faced lesser shocks because 4. Features of good tax incentive of their resource oriented economies. systems 2. Growth determinants Tax incentives have been justified for a number of reasons in emerging economies, chief among them For over half a century economists have used being the need to compensate for the existence of a sources-of-growth accounting framework to market failures that discourage investment1. High estimate the contributions to growth of changes capital mobility and international competition for in the labor force, in capital and in technology. foreign direct investment (FDI) has also led countries 5 to offer tax incentives as well as other enticementsin First of all, any tax incentive scheme requires a an effort to land coveted investments. Lastly, tax well-functioning overarching tax system. The point incentives are frequently seen as an expedient way is that tax incentives will only work if taxes are to address existing bottlenecks and limitations that collected in the first place, a not so obvious fact in make a country or sub-regions of a country, less many countries in the hemisphere due to poor tax attractive for investment and that would require design and weak tax and customs administration. lengthy structural reform. Efficient, client-oriented tax and customs administrations are key to collecting taxes. Tax and Of the three reasons mentioned previously, customs administrations should enjoy financial possibly the most compelling justification for the and administrative autonomy, and its staff should use of tax incentives is the existence of positive be part of a civil service that is independent of the spillover effects. Under a scenario of positive political system. The same degree of professional externalities, a firm will decide a level of investments skill is required of budgetary institutions, sectorial that will be sub-optimal if it will not be able to reap ministries and investment boards responsible all the benefits associated with this investment. In for managing and overseeing any investment this case, tax incentives could be used to increase promotion regime. An important element of a a project’s profitability, inducing the firm to well-designed system is the separation of those increase the level of investment. Examples of these responsible for the administration of the tax investments are those located in a country’s less benefits of projects from those responsible for developed regions or those that build human and selecting these projects based on objective criteria physical capital that will not exclusively benefit the and monitoring that slippages have not occurred project’s owners 2. regarding the commitments made by investors. As described in Zee et al (2002) and Artana et al The next, frequently overlooked, step of a (2012), poorly designed tax incentives are likely good tax incentive system is a sustainable fiscal to have major negative effects on the economy. framework. Introducing tax incentives in countries They will erode the tax base, in some cases by of questionable fiscal solvency will likely not be providing tax relief to economic activities that conducive to generating quality investments, as were profitable and did not require this relief, in entrepreneurs will not expect that the favorable others due to abuses in the system by activities not tax treatment awarded to their investment will be eligible to receive them. This loss in tax revenue sustained over time. will need to be compensated, possibly by raising taxes on the rest of the economy and/or reducing But what kind of tax incentives are there? The expenditures. They will distort resource allocation initial distinction to be made when considering in favor of promoted activities, which may not have tax incentives is between incentives through direct been the obvious choices from an efficiency point taxes – the Corporate Income Tax (CIT) – and of view. Furthermore, promoting any activity tends indirect taxes (import tariffs and the Value Added to affect human behavior, creating opportunities Tax – VAT)3. for corruption and rent-seeking behavior. However, since tax incentives are unlikely to be Corporate Income Tax Incentives abandoned by most developing countries as a policy instrument, focus should be placed on Tax incentives under the CIT target the tax rate as figuring ways to minimize harmful effects of tax well as capital recovery of invested amounts. Table incentives. Even in the case of market failures, the 1 summarizes the advantages and disadvantages benefits to the economy should outweigh the cost of these instruments in terms of revenue and associated with the introduction of tax incentives. implementation costs, of the distortions they And even then, care must be taken to design introduce in favor of tax avoidance and resource instruments that will be best for the economy. 1 The infant industry argument was used to justify trade barriers while the nascent economic sector developed the skills, knowledge, etc. that allowed it to compete with foreign production. This argument has lost support due to the unsatisfactory performance of inward oriented development strategies vis a vis that of economies that embraced trade openness. 2 Porto (2010) describes Uruguay’s sophisticated investment promotion regime. 3 This is merely an analytical distinction as many investment promotion regimes (e.g. Argentina and Brazil) provide tax incentives through direct and indirect taxes. Tierra del Fuego’s tax incentives can be consulted in http://www.sub-industria.gob.ar/depyme/regimen-especial-aduanero-y-fiscal-de-tierra-del-fuego. Manaos’ regime is described in http://www.suframa.gov.br/zfm_incentivos.cfm. 6 allocation and in terms of transparency for the tax From the perspective of its implementation, system. The preference is to provide tax incentives an accelerated depreciation scheme is fairly through accelerated depreciation. This alternative straightforward and does not require a specific allows taxpayers to frontload depreciation beyond arrangement from the tax administration. Unlike the regular schedules accepted in the tax code, in other direct tax incentive schemes that favor some cases even expensing the total investment combining profits from firms that do not enjoy tax amounts when the investment is made. The revenue incentives with those that do benefit from them, cost associated with accelerated depreciation is accelerated depreciation does not introduce bounded by the amount invested, unlike incentives any bias in terms of tax avoidance. Likewise, this that operate on profits, which are unbounded alternative is transparent as taxpayers are required and depend on the performance of the project. to file tax returns every year and it does not distort Expressed from a different angle, the incentive the nature of the investment to be undertaken by only affects the timing of the cost–recovery and not the firm. its amount. Table 1 Corporate Income Incentives Tax Holiday Preferential Accelerated Investment Investment Tax rate Depreciation Allowance Tax Credit Revenue cost Unbounded Bounded Bounded Bounded Bounded Tax avoidance Encourages Encourages Does not Encourages Encourages transfer of transfer of encourage sale and sale and profits from profits from tax purchase of purchase of firms that are firms that are avoidance assets to assets to not exempted not claim claim exempted allowance allowance Transparency Normally do Requires tax Requires tax Requires Requires of revenue not require filing filing tax filing tax filing cost tax filing Resource Tend to Tend to Does not Tend to Tend to allocation attract short- affect life of attract short- favor short favor short run projects run projects assets. term assets term assets Tend to increase capital intensity Administration Significant tax Significant Some. Some Some Costs administration tax Usually costs to administration associated monitor tax costs to with carry avoidance monitor tax forwards. from related avoidance but non- from related exempted but non- firms. exempted firms. Implementation Medium to Medium to Initially to Initially to Initially to Costs ensure ensure ensure ensure ensure project project investment is investment investment complies with complies with made is made is made goals goals   Tax incentives provided through While general exemptions are easy to administer, import tariffs, excises and VAT they may entail significant revenue loss. Targeted exemptions to benefit specific industries or sectors Tax incentives can also be provided in the cases of that use these inputs will narrow the loss. However, import tariffs, excises and VAT4. This is usually done these exemptions interfere with the desired tax by exempting certain inputs from these taxes. neutrality in resource allocation as they provide tax 7 relief only to specific beneficiaries. They also pose prepared by countries’ Budget Offices. We significant challenges to tax administrations as the examine the tax expenditures of two economies in exempted inputs may be diverted to unintended the region: the Dominican Republic and Jamaica. beneficiaries. Revenue concerns, allocation As we shall see, both countries provide significant, distortions and enforcement costs are the three and unaffordable, tax relief. However, the fact that main factors that discourage the use of indirect there is so little to show for these tax expenditures tax incentives in most economic activities, the should be taken as evidence that there is no exception being those that are export-oriented. substitute for a targeted policy or for the need for The economic rationale for eliminating indirect a well-designed tax system. taxes from exports is provided by the destination principle under which goods and services are We will then review the aggressive tax planning taxed wherever they are consumed. The best- behavior of the Dominican Republic’s tourist sector known example is the zero rating of VAT on exports, under the understanding that it does not differ by which the exporter receives a tax credit for the significantly with that of other countries in the amount of VAT paid on inputs used to produce the region. The response of the Dominican Republic’s good or service. This implies that the tax treatment tax administration, employing transfer pricing rules a product will receive will depend on whether it is developed under the existing OECD guidelines sold in the domestic market or abroad. will be described as it can easily be adapted to other Caribbean economies. While the destination principle is straightforward, its implementation can present challenges Zee et al (2002) paint a bleak picture when they for many customs and tax administrations in review the empirical work on the effectiveness of developing countries. The challenge is due to the tax incentives in developing countries: “The main fact that indirect taxes will be reimbursed only on messages of this research are that tax incentives the amounts paid on import tariffs, excise taxes can stimulate investment but that a country’s overall and VAT for inputs used to produce the goods and economic characteristics may be more important services that were exported. However, exporting for the success or the failure of industries than any firms usually produce more than one good or tax incentive package; and even if tax incentives service, using many inputs in different proportions stimulate investment, they are not generally cost that may be taxed at different rates and that are effective.” sold domestically or exported. Klemm and Van Parys (2009), analyze the use of A final mention should be made regarding Export incentives as tools of tax competition, as well as Processing Zones (EPZ). There is widespread use of their effectiveness in attracting investment in EPZ in the region to promote exports and it is not an econometric study covering 47 African, Latin unusual that economic activities are exempt from American and Caribbean countries over a 20- direct and indirect taxes. While the latter is non- year period5. While they find evidence that tax controversial, indirect tax incentives for export- incentives provided by CIT rates and tax holidays related-activities is a violation of WTO rules and are effective in attracting FDI, this is not the case must be dismantled by 2015 for all but the poorest in terms of increasing overall private investment or countries. growth, thereby concluding that the tax incentive’s “ultimate benefits for the economy may be limited6” 5. Evidence on the effectiveness of tax incentives in developing countries From a tax revenue perspective Nassar (2008) found that CIT competition had let to the erosion of the In this section we begin by reviewing analytical tax base in 15 Caribbean countries. He concluded work on tax incentives in developing countries that the widespread use of tax holidays needed to and their impact on investment and growth. While be eliminated if alternative policy proposals being this literature is not abundant, a further source considered at that time – including accelerated of information on the cost of these policies is depreciation and tax harmonization – were to available through the tax expenditure reports have an impact on revenue collection. Sosa (2006) 8 also finds disappointing results of tax incentives tax and social security taxes. Tax expenditures in terms of generating new investments and their are high, around 5.8% of GDP. Almost two thirds high costs in terms of foregone tax revenue for of this amount provides relief from VAT, in an the small island states that comprise the Eastern attempt to mitigate the high adverse distributional Caribbean Currency Union (ECCU). Chai and Goyal consequences of this tax. The remaining 2.2% of (2008) also study the tax incentives provided by the GDP benefits export promotion zones, general same group of countries and find “The costs are manufacturing and the tourist sector. very large, while the benefits appear to be marginal In the same year, Jamaica’s tax collection reached at best. Foregone tax revenues range between 23.6% of GDP, with a relatively high share of 91/2 and 16 percent of GDP per year, whereas income taxes in total tax receipts. Tax expenditures total foreign direct investment does not appear to are high; they represented 7.3% of GDP in 2009, depend on concessions. A rethinking of the use of reflecting widespread use of tax instruments to concessions in the region is needed urgently7”. promote economic activities. Tax incentives are The Budget Office’s tax expenditure reports provide grouped under four categories: Statutory Tax a further estimate of the cost of tax incentives in the Expenditures, Incentives, Discretional Waivers and Dominican Republic and Jamaica. The Dominican Waivers on Tax Arrears. What should be clear is Republic had a tax burden of around 15.5% of that this incentive system not only reduces public GDP in 2010. VAT and excises are the largest revenue but it ends up undermining the capacity revenue sources, followed closely by the income of tax administration. Table 2 Dominican Republic and Jamaica - Tax Burden and Tax Expenditures As a % of GDP Dominican Republic Jamaica Income Tax 2.9 8.7 VAT 4.3 7.1 Excises 3.5 3.2 Trade 1.0 1.7 Others 3.8 2.9 Total 15.5 23.6 Tax Expenditures 5.8 7.3 Sources: IDB CIAT Data Base, Garcimartín and Diaz de Sarralde (2012), and IDB (2010)   Tourism is possibly the most competitive sector sector, the Dominican Republic’s tax administration of Caribbean countries, in spite of which most (Dirección General de Impuestos Internos - DGII) countries have awarded it with over-generous tax launched a thorough investigation of the country’s incentives. Tourism on average accounts for almost all-inclusive hotel sector8. The main findings were forty cents of every dollar of export earnings in the that CIT and VAT liabilities were kept at a minimum region, and this amount can rise to almost eighty due to three reasons: (1) reservations were handled cents in the cases of Barbados and The Bahamas. by trading companies linked to the hotel operator However, tourism’s share of tax revenue tends to but located in countries with low or no tax; (2) be modest, in no small part due to aggressive tax hotels declared daily rates to the tax administration planning (Barreix and Velayos (2013)). that were lower than the operating cost per guest; (3) hotels reported permanent losses to the tax In order to improve tax collection from the tourism administration as well as debts to the trading companies. 5 The Caribbean countries included in Klemm and Van Parys (2009) that are also considered in this Policy Note are Bahamas, Barbados, Dominican Republic, Guyana, Jamaica and Trinidad and Tobago. 6 The authors offer two possible explanations for the limited impact of tax incentives: (1) tax incentives “mainly affect the ownership rather than the amount of capital in an economy” and (2) “it is possible that higher FDI crowds out domestically financed investment, with no net effect”. 7 Chai and Goyal (2006) use the term concession instead of incentives in their study. 9 The DGII then designed an arm’s length occupancy needs and taxpayers should perceive it to be fair rate using the OECD’s Transfer Pricing Guidelines for and equitable, both horizontally and vertically. Multinational Enterprises and Tax Administrations. This rate was then used by DGII to assess CIT and Caution with tax incentives is warranted on VAT liabilities for 2007/2010. According to Barreix analytical and empirical grounds. With regards to and Velayos (2010), DGII CIT assessments for the former, a clear and limited and limited scope of 2007/2009 represented an average increase of what can be accomplished with this instrument is almost 820% of previous self-assessed obligations. the starting point of any successful policy initiative. The comparable figure for VAT was 70% higher for Tax incentives can address negative externalities 2007, 2009 and 2010. While hotels contested the that limit investments, determine their location and tax administration’s actions, the Courts ruled in discourage job creation. They cannot however be favor of the DGII. used as a Deus ex machina that will solve all of an In short, tax expenditure data show that regional economy’s structural deficiencies. They are not governments have showered economic activity and cannot be a substitute for structural reform. with all types of tax breaks that most countries cannot afford. These tax expenditures have not led Empirical evidence of successful tax incentive to more competitive economies and have ended schemes implemented in developing countries up not only distorting the tax system but they is scarce and in any case discouraging. Studies have also introduced horizontal inequity between carried out in developing countries including the taxpayers as well. Moreover, even considering Caribbean have found that while tax incentives may tourism, the region’s most competitive sector, attract FDI, they have not been able to increase bad policy design combined with aggressive overall private investment or economic growth. tax planning practices has undermined the tax Moreover, not only have the ultimate benefits system and deprived governments of revenue proven to limited, the cost in terms of foregone badly needed to finance social expenditures revenue has proven to be very high as exemplified and infrastructure needs. The conclusion by by the small island states of the Eastern Caribbean now should be clear: tax incentives are a poor Currency Union. Additional information on the substitute for a dysfunctional tax system. Countries fiscal costs of tax incentives are available in tax should consider rationalizing their tax system and expenditure reports. The two countries examined eventually think about introducing a modern and in this Policy Note provided a clear picture of the cost-effective tax incentive scheme, targeted difficulties of keeping tax expenditures in check as to offset negative externalities that discourage the cost of tax relief has ballooned to the 6%/7% growth and the creation of quality jobs9. of GDP range. The description of the aggressive tax planning behavior of the Dominican Republic’s tourism sector exemplifies the questionable Conclusions rationale of providing tax relief to one of the region’s most competitive industries. A good tax incentive system should provide an The challenge posed by the international economic explicit rationale of the externality it will address and scenario has revived the debate regarding the well-defined values of the variables it is expected need to review the policy alternatives of a group to obtain (e.g. invested amounts, jobs, net exports, of small Caribbean and South American nations. A etc.). This information should be assessed by a key element of this review is the use of tax incentives government agency that is independent of political to promote growth and job creation. pressure and its reports should be available to the public. Smaller countries could consider creating a The starting point of any successful tax incentive regional tax incentive scheme, administered jointly policy is a well-designed tax system. The tax system by a regional multilateral body of member states should collect the revenue required to finance to alleviate political pressure and better resist government services and help fund infrastructure games often played by investors on governments 8 All-inclusive hotels represent 69% of rooms in the country’s hotel sector (Montero (2012). 9 A brief description of the proposed activities in the design of tax systems and institutional strengthening of tax administrations and customs over the 2011-15 Phase IV period is presented in CARTAC (2010) Program Document. 10 to enhance their benefits. Easterly, William and Levine, Ross (2001), “It’s Not Factor Accumulation: Stylized Facts and Growth Models”. World Bank Transparency should continue during project Economic Review 15:2. implementation. Monitoring by the tax administration and the government agencies responsible for promoting investments should also be made public. Public disclosure of project Garcimartin, Carlos y Díaz de Sarralde, Santiago (2012), “Análisis targets and their costs in terms of foregone tax del sistema impositivo de la REPÚBLICA DOMINICANA”. Informe liabilities should be a feature of the system. Finally, de Consultoría para el Banco Interamericano de Desarrollo. tax incentives should have a sunset clause. IMF (2013), “Caribbean Small States: Challenges of High Debt and In terms of implementation, the Corporate Income Low Growth”, Washington DC. Tax is the instrument of choice. Job creation may IDB (2010), “Jamaica: Preliminary Assessment for a warrant the use of reduced payroll taxes to finance Comprehensive Tax Waiver Strategy”. Mimeo. the social security system. Similarly, location in Klemm, Alexander and Van Parys, Stefan (2009), “Empirical less developed regions of a country may benefit Evidence on the Effects of Tax Incentives”, IMF Working Paper from exemptions in local taxes. The accelerated (WP/09/136), Washington D.C.; International Monetary Fund. depreciation allowance is a preferred instrument to tax rates and tax holidays and tax filing should always Montero, Wanda (2012), “Determinación de los Beneficios en be required. Incentives in terms of indirect taxation los Hoteles Todo Incluido en la República Dominicana”. Santo should be limited to export oriented activities and Domingo, mimeo. are essentially covered by the destination principle Nassar, Koffie (2008), “Corporate Income Tax Competition in the of taxation under which goods and services should Caribbean”, IMF Working Paper (WP/08/77), Washington D.C.; be taxed wherever they are consumed. International Monetary Fund. OECD (2010), “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations”, Paris. Porto, Luis (2010), “Un Marco Conceptual de Política Industrial: aplicación al caso de la promoción de inversions en Uruguay 2005-2009”. Mimeo. Prescott, Edward C. (1998), “Needed: A Theory of Total Factor Bibliography Productivity”, International Economic Review, Volume 39, Issue 3. Artana, Daniel and Templado, Ivana (2012), “Incentivos tributarios Sosa, Sebastian (2006), “Tax Incentives and Investment in the a la inversión: ¿Qué nos dicen la teoría y la evidencia empírica Eastern Caribbean”, IMF Working Paper (WP/06/23), Washington sobre su efectividad?”. Informe de Consultoría para el Banco D.C.; International Monetary Fund. Interamericano de Desarrollo. World Bank (2012), “Tax Expenditures in Colombia: A proposal for Barreix, Alberto and Velayos, Fernando (2013), “Towards a New a systematic and integral review”, Washington, DC. Form of International Taxation”, Intertax, Volume 41, March. World Bank ( 2004), “ Tax Expenditures – Shedding Light on CARTAC (2010), “Program Document”, Caribbean Regional Government Spending through the Tax System. Lessons from Technical Assistance Center, International Monetary Fund. Developed and Transition Economies”, Directions in Development Chai, Jingqing and Goyal, Rishi (2008), “Tax concessions and Series, Washigton, DC. Foreign Direct Investment in the Eastern Caribbean Currency Union”, IMF Working Paper (WP/08/257), Washington D.C.; Zee, Howell, Stotsky, Janet and Ley, Eduardo (2002), “Tax International Monetary Fund. Incentives for Business Investment: A Primer for Policy Makers in Developing Countries”, World Development 30:9. DGII (2010), “Informe de Actividades: Servicio de Hotelería Todo Incluido”, Dirección General de Impuestos Internos. Departamento de Estudios Económicos y Tributarios, available in: http://www.dgii.gov.do/publicaciones/estudios/Documents/ AnalisisSectoriServiciosalojamientotodoincluido.pdf 11 worldbank.org/lac 12