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This paper analyzes how investment incentives may or may not be used to foster private investment, particularly in developing countries. As practitioners and policymakers can attest, political economy exerts a powerful influence on incentives. Many incentives especially generous ones have persisted because of lobbying by special interests and politicians' need to curry favor. Yet little research has been done on how political economy affects incentive policy. Second, the paper sheds light on the role that political economy plays in the popularity of incentives and the related shortcomings. Incentives are sometimes used to dole out favors to investors, so investors who benefit from incentives resist attempts to eliminate them. This paper suggests a way to tackle such problems. Third, the paper compiles good practices on managing and administering incentives in developing countries, drawing on government and private sector experiences. Finally, the paper provides policymakers with a framework for analyzing the efficacy of investment incentives based on the sector and level of development involved, and suggests reforms for moving toward best practice.

Audits --- Business Development --- Business Environment --- Debt Markets --- Decision Making --- Developing Countries --- Economic theory & Research --- Emerging Markets --- Expenditures --- Exporters --- Finance and Financial Sector Development --- Fiscal Policy --- Foreign Direct Investment --- Fraud --- Gdp --- Host Countries --- Income Tax --- Inflation --- International Finance --- Job Creation --- Macroeconomics and Economic Growth --- Monetary Policy --- Multinational Corporations --- Natural Resources --- Outsourcing --- Per Capita Income --- Political Economy --- Private Investment --- Private Sector Development --- Public Finance --- Public-Private Partnerships --- Rent Seeking --- Rule of Law --- Savings --- Tax Administration --- Tax Evasion --- Tax Exemptions --- Tax Policy --- Taxation & Subsidies --- Technical Assistance --- Telecommunications --- Transparency --- Unemployment

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This Public Expenditure Review (PER) takes stock of fiscal developments and institutions and analyzes the key issues that bear on the level, composition, challenges, and effectiveness of government spending and the stance of fiscal policy. Understanding these issues is essential, as new fiscal pressures are emerging in the process of economic transformation and as citizens demand higher quality of education and other public services. The fiscal reform agenda remains extensive but working on it will provide an opportunity to strengthen the effectiveness of government and boost inclusive economic growth. In the process of ongoing economic transformation, the government is facing several challenges in fiscal policy, for which this PER has developed policy options.

Fiscal Policy --- Intergovernmental Relations --- Public Sector Development --- Public Sector Management and Reform --- State-Owned Enterprises

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Economics