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Can Fiscal Incentives Stimulate Regional Investment in the Philippines (An update of empirical results)

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  • Renato E. Reside, Jr.

    (School of Economics, University of the Philippines Diliman)

Abstract

This study updates earlier estimates of the sensitivity of regional investment flows in the Philippines to fiscal incentives – income tax holidays and other fiscal inducements provided by government. All other factors held constant, the strength and significance of the investment-inducing effect of a given set of incentives can be gleaned from the size and significance of proxies used for incentives in investment regression equations. Using regional data, the regressions confirm that proxy variables for incentives are not good predictors for regional investment in the Philippines. The results reinforce previous empirical findings that, consistent with international evidence on the power of incentives, the power of incentives to influence patterns of regional investment within the Philippines is also weak. This reinforces the policy implications of Reside’s (2006) paper – rather than waste resources providing ineffective investment subsidies each region in the country would be better off if the Philippine government streamlined fiscal incentives, raised a sufficient amount of taxes and then procured the productivity-enhancing public goods (access to good education and infrastructure) that really mattered more for investment and investors.

Suggested Citation

  • Renato E. Reside, Jr., 2007. "Can Fiscal Incentives Stimulate Regional Investment in the Philippines (An update of empirical results)," UP School of Economics Discussion Papers 200705, University of the Philippines School of Economics.
    • Handle: RePEc:phs:dpaper:200705
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    File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/67/59
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    References listed on IDEAS

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    1. Gastanaga, Victor M. & Nugent, Jeffrey B. & Pashamova, Bistra, 1998. "Host Country Reforms and FDI Inflows: How Much Difference do they Make?," World Development, Elsevier, vol. 26(7), pages 1299-1314, July.
    2. Mutti, John & Grubert, Harry, 2004. "Empirical asymmetries in foreign direct investment and taxation," Journal of International Economics, Elsevier, vol. 62(2), pages 337-358, March.
    3. Renato E. Reside Jr., 2006. "Towards Rational Fiscal Incentives (Good Investments or Wasted Gifts?)," UP School of Economics Discussion Papers 200601, University of the Philippines School of Economics.
    4. Cheng, Leonard K. & Kwan, Yum K., 2000. "What are the determinants of the location of foreign direct investment? The Chinese experience," Journal of International Economics, Elsevier, vol. 51(2), pages 379-400, August.
    5. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
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    Cited by:

    1. Rosa Alonso i Terme, . "Tax Policy for Good Governance, Job Creation and Inclusive Growth," PCED Policy Notes, Philippine Center for Economic Development.
    2. International Monetary Fund, 2012. "Philippines: Technical Assistance Report on Road Map for a Pro-Growth and Equitable Tax System," IMF Staff Country Reports 2012/060, International Monetary Fund.

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