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Tax incentives for jobs: bang for the buck or wasted resources?

Author

Listed:
  • Tilahun Emiru
  • Temesgen Woldamanuel Wajebo

Abstract

Purpose - This study aims to evaluate the effectiveness of tax incentives provided by the Ethiopian government in spurring private investment and job creation, using unique administrative and survey data. Design/methodology/approach - The study employs a dataset covering large- and medium-scale manufacturing in Ethiopia from 2012 to 2018, combined with administrative data on actual tax payments and statutory obligations to gauge the impact of tax incentives. Regression analysis using the generalized method of moments (GMM) is used to examine the relationship between tax incentives and employment, taking into account variations in production, distribution and financial costs. Findings - The study finds that tax incentives do not significantly affect employment at conventional significance levels. The incentive elasticity of employment appears to diminish as production, distribution and financial costs increase. Consequently, the incentives provided by the government have not had a substantial impact on employment generation within the manufacturing sector. Originality/value - This study is unique for its comprehensive analysis of tax incentives in the Ethiopian manufacturing sector using both administrative and survey data. It highlights that increasing production and financial costs can offset the employment benefits of these incentives, emphasizing the need for a more favorable business environment for private investors.

Suggested Citation

  • Tilahun Emiru & Temesgen Woldamanuel Wajebo, 2024. "Tax incentives for jobs: bang for the buck or wasted resources?," International Journal of Manpower, Emerald Group Publishing Limited, vol. 46(1), pages 18-35, September.
  • Handle: RePEc:eme:ijmpps:ijm-10-2023-0626
    DOI: 10.1108/IJM-10-2023-0626
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    More about this item

    Keywords

    Tax incentives; Employment creation; Production costs; Private investment; Ethiopia; H50; J21; O14; O25;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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