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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

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This paper provides an overview of full and partial allowance for corporate equity (ACE) tax systems in practice. In the recent past, ACE systems have been used in Austria, Croatia, and Italy. Brazil still applies a variant of such a system and Belgium introduced one this year. This paper summarizes the empirical literature on past ACE systems, and provides a theoretical and empirical assessment of the Brazilian ACE variant. The main finding is that the Brazilian reform introduced an ACE system for a minority of firms only, with the majority instead having a system of dividend deductibility. Despite the reduction in the tax preference for debt finance, capital structures have not changed much, but dividends have increased. Investment appears to have benefited from the reform, although the extent to which this was due to the new structure rather than the tax cut is unclear.

Corporations -- Finance. --- Corporations -- Taxation. --- Electronic books. -- local. --- Management --- Business & Economics --- Industrial Management --- Corporations --- Finance. --- Taxation. --- Corporate income tax --- Corporate taxes --- Corporation income tax --- Corporation tax --- Federal corporation tax --- Franchises, Taxation of --- Taxation of franchises --- Business finance --- Capitalization (Finance) --- Corporate finance --- Corporate financial management --- Corporation finance --- Financial analysis of corporations --- Financial management, Corporate --- Financial management of corporations --- Financial planning of corporations --- Managerial finance --- Going public (Securities) --- Finance --- Valuation --- Investments: Stocks --- Taxation --- Corporate Taxation --- Business Taxes and Subsidies --- Taxation, Subsidies, and Revenue: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Corporate & business tax --- Public finance & taxation --- Investment & securities --- Allowance for corporate equity --- Stocks --- Income tax systems --- Effective tax rate --- Income tax --- Tax administration and procedure --- Brazil