Abstract

AMALFI GONZALEZ, Alex. Government tax collections and investment based tax deductions: a simple application for the Colombian case. Cuad. Adm. [online]. 2005, vol.18, n.30, pp.111-136. ISSN 0120-3592.

This paper analyses the tax income consequences for the government of creating a tax reduction system based on investments. This type of policy is usually applied with a view to improving the general conditions of the economy, or as a model of investment for the future, but the net effect on tax collection for the government depends on the performance of businesses benefiting from the deductions. This investigation used economic, mathematical, statistical and dynamic tools to describe the optimization problems for businesses and the government (related to fiscal problems) within a neoclassical framework. The practical application is related to Colombia, and uses a calibration of the author’s proposed variables. The paper concludes that it is convenient to apply this instrument, given the need to accelerate economic growth and solve a difficult fiscal situation at the same time. Furthermore, it establishes that tax benefits are unlikely to generate excessive levels of investment that would reduce tax collection at current values. However, measures may need to be introduced to control how benefits are granted and avoid opportunistic behavior.

Keywords : tax reform in Colombia; tax exemption; economic growth; investment, income tax.

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