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Tax incentives have been used extensively in the countries of the Eastern Caribbean Currency Union (ECCU) to promote investment. The associated revenue losses are large, and benefits in terms of new investment have been limited, raising doubts about the cost effectiveness of the tax incentive schemes. This paper examines the effects of incentives using the marginal effective tax rate approach (METR), adapting this methodology to the case of a small open economy where the marginal investor is a nonresident. The results show that METRs are high in the region; that there is a large dispersion in the size of METRs across financing source; and that METRs on investment are larger than the overall distortion on capital, with a substantial subsidy to domestic saving. In the presence of tax holidays-the most common incentive scheme in the region-the distortion on capital basically vanishes.

Capital investments -- Caribbean Area. --- Electronic books. -- local. --- Investment tax credit -- Caribbean Area. --- Finance --- Business & Economics --- Financial Management & Planning --- Capital investments --- Investment tax credit --- Capital expenditures --- Capital improvements --- Capital spending --- Fixed asset expenditures --- Plant and equipment investments --- Plant investments --- Depreciation allowances --- Tax credits --- Investments --- Investments: Stocks --- Taxation --- Taxation, Subsidies, and Revenue: General --- Business Taxes and Subsidies --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Public finance & taxation --- Investment & securities --- Tax holidays --- Tax incentives --- Marginal effective tax rate --- Consumption taxes --- Stocks --- Tax administration and procedure --- Spendings tax --- Antigua and Barbuda