Social and Behavioral Sciences Commons^™

Imported Capital Dependency As An Economic Development Strategy: The Failure Of Distortionary Tax Policies In Puerto Rico, Joseph Pelzman

Joseph Pelzman

The use of tax holidays and other financial incentives designed to attract foreign investment is an old development strategy which like a magic pill has substantial negative side effects. There are many factors that influence the flow of investment across borders. An increase in the rate of return as exemplified by a deferral of taxes is but one factor among many including, but not limited to, the quality of host location infrastructure, the human capital of the participating labor force, the state of health care provision, the state of telecommunication coverage, etc., that enter a multinational’s decision tree and determine …