The Proliferation of Fiscal Incentives and the Nicaraguan State as a Manager of Rents: A Political Economy Perspective on Nicaraguan Industrial Policy Since 1990

Abstract

This paper finds that the proliferation of fiscal incentives in the form of tax exemptions in Nicaragua since 1990 represents the indiscriminate allocation of monopoly rents to interest groups. While theory suggests some rents can encourage productive investments, Nicaragua’s tax incentives are merely “assistentialist” and lack effectiveness. For a dynamic industrial policy, opportunity costs would need to be taken into account and rents would need to be performance contingent, which requires selectivity and increased transparency.Nicaragua; industrial policy; political economy; fiscal incentives; tax incentives; monopoly rents; rent-seeking