The effects of taxes on different sectors of the economy: A comparison of selected Asian countries

This source preferred by Sukanya Ayatakshi Endow

Authors: Ayatakshi, S. and Yanti, E.

Start date: 9 July 2012

This paper uses an input-output methodology to consider how national taxes affect current and potential profitability in different sectors of an individual economy. The underlying reason for such an examination is to analyse how national taxes currently affect and have affected the underlying profit incentives to undertake investment in one country and in one sector rather than another. Although no specific distinction is made in the analysis between domestic and foreign investment the analysis is particularly relevant for the location of inward foreign direct investment where firms can choose the most favourable location. To provide the analytical base for comparing the effects of national taxes on different locations (and in different sectors) the study uses recent input-output tables from a number of Asian countries. This approach enables further simulations to be conducted to assess the extent to which different tax policies create differences between countries in the effects of taxes on underlying profits and the extent to which different production conditions create varying effects on profitability from essentially similar rates of taxation. The analysis focuses on taxes as normally applied rather than on any specific tax incentives for inward foreign investment. Some consideration of such special tax incentives is given but this is not the main focus of the paper.

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