ABSTRACT
Among governments of developing countries, it is a widespread practice to operate schemes which give tax concessions to newly established firms or old firms starting new activities. This chapter begins with a summary analysis of relevant aspects of tax legislation in 28 developing countries which are known currently to offer fiscal incentives to the private sector. It discusses the attempts so far made to measure the impact and effectiveness of fiscal incentives in promoting the growth of private sector investment. The chapter argues that the conventional rationale of fiscal incentives is a dubious one, and that any explanation of their popularity with governments of developing countries must rest on an analysis which fuses social and political with purely economic considerations. The combination of foreign trade control and industrial licensing actually creates spare industrial capacity in approved industries.
