handbook-tb

Eric M. Zoltwith the creation of a stipulated number of new jobs as a qualifyingcondition for the tax holiday or other incentive.Foreign direct investment often results in the transfer of technology.Even critics of tax incentives concede that they may be usefulto promote activities such as research and development, if only as away of correcting market imperfections. Countries attempt to attracttechnologically advanced investment in several ways: (a) by targetingincentives at technologically advanced sectors; (b) by providing incentivesfor the acquisition of technologically advanced equipment; and(c) by providing incentives for carrying out research and development(R & D activities).Finally, the experience of many developing countries is thatexport promotion, and the attraction of export-oriented investment, isthe quickest and most successful route to economic growth. It is thereforehardly surprising that competition to attract such investment isespecially fierce, and investment incentives are frequently targeted atexport-oriented production. Incentives targeted specifically at exportorientedinvestment may be more effective than other tax incentives,due to the higher degree of mobility of such investment.2.2.1.2 Forms of tax incentivesDesigning tax incentives requires two basic decisions: (a) determiningthe types of investment that qualify; and (b) determining the form oftax incentive to adopt. Tax incentives for investment take a variety offorms. Table 1 sets forth the most commonly employed tax incentives.This section examines three different types of tax incentives: taxholidays, investment credits and allowances, and tax credit accounts.While the first two types of incentives are used frequently, the tax creditaccount approach has received too little attention from policymakers.470