Effectiveness of Corporate Tax Incentives in Attracting Investments

Effectiveness of Corporate Tax Incentives in Attracting Investments

Dr. Kiran Kumar M, Vishal M Pawar, Sukeerth Antony, Bikramaditya Sarkar

1 Assistant Professor – Finance, 2 MBA Student of Finance, 3 MBA Student of Finance Faculty of Management Studies, CMS Business School, Jain (Deemed-to-be University), Bengaluru, Karnataka – 560009

1 kiranm287@gmail.com, 2 vishal_murali23@cms.ac.in, 3 sukeerth_antony23@cms.ac.in,

 4 bikramaditya_sarkar23@cms.ac.in

Abstract

Corporate tax incentives are widely used by developing nations to attract investments, stimulate economic activity, and drive industrial growth. This study investigates the effectiveness of these incentives in achieving their intended goals by analysing macroeconomic data from a diverse sample of developing economies over the past two decades. The research focuses on the relationship between tax policies and key investment indicators such as foreign direct investment (FDI), domestic capital formation, and economic growth metrics like GDP, employment, and productivity.

Using a combination of panel data regression and time-series econometric techniques, the study identifies critical factors that mediate the success of tax incentives, including the quality of governance, infrastructure development, and ease of doing business. Preliminary findings suggest that while corporate tax incentives are effective in attracting short-term investments, their long-term impact on economic growth is contingent on broader economic and institutional frameworks. The analysis also highlights potential trade-offs, such as revenue loss and inequality, stemming from poorly designed tax policies.

This paper contributes to the literature by providing empirical evidence on the conditional effectiveness of tax incentives and offering actionable policy recommendations. The findings aim to assist policymakers in designing balanced tax regimes that promote sustainable economic growth without undermining fiscal stability.