IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/698.html
   My bibliography  Save this paper

Tax policy options to promote private capital formation in Pakistan

Author

Listed:
  • Feltenstein, Andrew
  • Shah, Anwar

Abstract

The authors developed a simple two-period general equilibrium model to analyze the macroeconomic impact of tax policies in Pakistan. They analyze two scenarios. In scenario 1, the investment tax credit rate is increased from 15 percent to 30 percent. The new fiscal regime increases investment but also significantly increases inflation. In scenario 2, the original investment tax credit rate is retained but the statutory corporate tax rate is reduced. Welfare improves more than under scenario 1. The authors conclude that in Pakistan, at least, changes in corporate tax rates are probably better instruments for promoting capital formation than are increased investment tax credits. In particular, cuts in corporate taxes improve welfare more than do increases in investment tax credits. Increasing the investment tax credit stimulates more capital formation than does decreasing corporate taxes, but the tax credits also have significant macroeconomic consequences.

Suggested Citation

  • Feltenstein, Andrew & Shah, Anwar, 1991. "Tax policy options to promote private capital formation in Pakistan," Policy Research Working Paper Series 698, The World Bank.
    • Handle: RePEc:wbk:wbrwps:698
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1991/06/01/000009265_3961001132927/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, vol. 78(2), pages 211-216, May.
    2. Sen, Partha & Turnovsky, Stephen J., 1990. "Investment tax credit in an open economy," Journal of Public Economics, Elsevier, vol. 42(3), pages 277-299, August.
    3. Sebastian Morris, 2022. "Conclusions," India Studies in Business and Economics, in: Macroeconomic Policy in India Since the Global Financial Crisis, chapter 0, pages 281-296, Springer.
    4. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226036335.
    5. Abel, Andrew B., 1982. "Dynamic effects of permanent and temporary tax policies in a q model of investment," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 353-373.
    6. Feltenstein, Andrew & Morris, Stephen, 1988. "Fiscal stabilization and exchange rate instability," Policy Research Working Paper Series 74, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schubert Stefan F. & Turnovsky Stephen J., 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, De Gruyter, vol. 7(2), pages 135-161, May.
    2. Feltenstein, Andrew & Shah, Anwar, 1995. "General equilibrium effects of investment incentives in Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 253-269, April.
    3. Strulik, Holger & Trimborn, Timo, 2010. "Anticipated tax reforms and temporary tax cuts: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2141-2158, October.
    4. Andries Brandsma & d'Artis Kancs & Pavel Ciaian, 2013. "The Role of Additionality in the EU Cohesion Policies: An Example of Firm-Level Investment Support," European Planning Studies, Taylor & Francis Journals, vol. 21(6), pages 838-853, June.
    5. Jerzy Michalek & Pavel Ciaian & D'Artis Kancs, 2016. "Investment Crowding Out: Firm-Level Evidence from Northern Germany," Regional Studies, Taylor & Francis Journals, vol. 50(9), pages 1579-1594, September.
    6. Bronzini, Raffaello & de Blasio, Guido, 2006. "Evaluating the impact of investment incentives: The case of Italy's Law 488/1992," Journal of Urban Economics, Elsevier, vol. 60(2), pages 327-349, September.
    7. Sumru Altug & Fanny S. Demers & Michel Demers, 2004. "Tax Policy and Irreversible Investment," CDMA Working Paper Series 200404, Centre for Dynamic Macroeconomic Analysis.
    8. Raffaello Bronzini & Guido De Blasio, 2005. "Evaluating the impact of investment incentives - the case of the Italian Law 488," ERSA conference papers ersa05p649, European Regional Science Association.
    9. Christopher A. Hennessy & Ilya A. Strebulaev, 2020. "Beyond Random Assignment: Credible Inference and Extrapolation in Dynamic Economies," Journal of Finance, American Finance Association, vol. 75(2), pages 825-866, April.
    10. Raffaello Bronzini & Guido de Blasio & Guido Pellegrini & Alessandro Scognamiglio, 2008. "The effect of investment tax credit: Evidence from an atypical programme in Italy," Temi di discussione (Economic working papers) 661, Bank of Italy, Economic Research and International Relations Area.
    11. Jie Mao & Chunhua Wang, 2016. "Tax incentives and environmental protection: evidence from China’s taxpayer-level data," China Finance and Economic Review, Springer, vol. 4(1), pages 1-30, December.
    12. Ferran Sancho, 2003. "Energy Tax Simulation in a Flexible CGE Model of Catalonia," Working Papers 95, Barcelona School of Economics.
    13. Heyndrickx, Christophe & Ivanova, Olga & Vanherle, Kris, 2008. "On the construction and first empirical application of the new European Model for the Assessment of Environmental, Economic and Social effects of Sustainability Policies (EDIP)," Conference papers 330240, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Govinda R. Timilsina & Ram M. Shrestha, 2002. "General equilibrium analysis of economic and environmental effects of carbon tax in a developing country: case of Thailand," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 5(3), pages 179-211, September.
    15. Touhami Abdelkhalek & Jean-Marie Dufour, 1998. "Statistical Inference For Computable General Equilibrium Models, With Application To A Model Of The Moroccan Economy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 520-534, November.
    16. Wiese, Arthur M., 1994. "Contructing Data for Use in Applied General Equilibrium Models from the U.S. National Income and Product Accounts: An ERS Data Base," Staff Reports 278749, United States Department of Agriculture, Economic Research Service.
    17. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital Utilization and Returns to Scale," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 67-124, National Bureau of Economic Research, Inc.
    18. Céline DE QUATREBARBES & Luc SAVARD & Dorothée BOCCANFUSO, 2011. "Can the removal of VAT Exemptions support the Poor? The Case of Niger," Working Papers 201106, CERDI.
    19. Eric Zwick & James Mahon, 2014. "Do financial frictions amplify fiscal policy? Evidence from business investment stimulus," Working Papers 1415, Oxford University Centre for Business Taxation.
    20. Andreas Peichl, 2009. "The Benefits and Problems of Linking Micro and Macro Models — Evidence from a Flat Tax Analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 12(2), pages 301-329, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:698. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.