Latin American governments prefer tax exemptions as part of their investment promotion policies. However, the region lacks studies to assess the costs and benefits of this kind of incentive.

This is one of the conclusions of the document “Investment, Fiscal Incentives and Tax Spending in Latin America” by economists Juan Pablo Jiménez and Andrea Podestá of ECLAC’s Economic Development Division.

The authors state that in spite of the economic recovery in the region between 2003-2008, investment levels were insufficient to ensure sustainable growth.

Faced with the global economic crisis, several countries have resorted to measures that encourage investment, particularly tax exemptions, in contrast to developed countries, which have turned mainly to subsidies.

For this reason, the ECLAC suggests analyzing the means to quantify the fiscal cost of these incentives, commonly known as “tax expenditures”.

Processing in greater detail information on tax expenditures by tax, productive sector, regions of destiny and income deciles will help identify the beneficiaries of these policies and analyze their economic, regional and distributive impact, as well as assess the effectiveness of tax incentives compared to other instruments, such as subsidies and direct expenditures.