General equilibrium effects of investment incentives in Mexico

Abstract

Mexico has experimented with several tax instruments designed to promote private capital formation. Among such initiatives were general and industry-specific tax credits, employment tax credits, and corporate tax credits. The authors examine relative efficacy of such instruments using a dynamic computable general equilibrium model. They carry out model simulations using three equal-yield investment incentive scenarios: increases in investment tax credits, increases in employment tax credits, and an equivalent reduction in the corporate tax rate. The authors present outlines of the tax policy environment with model details and they highlight alternate tax incentives regimes. Conclusions and summary results are provided by the authors.International Terrorism&Counterterrorism,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance