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Tax Abatements and Rent-seeking

Department of Economics, University of Idaho. Moscow, ID 83843, USA

Recent literature has argued that a policy of invariant tax abatement awards is more costly than necessary, and has suggested several ways of improving tax abatement policy by allowing officials discretion in granting abatements. This paper argues such discretion carries its own dangers, and may well create rent-seeking costs larger than the other costs it is meant to avert. Analysis suggests tax abatements should be abandoned as a development policy. More generally, rent-seeking should be recognised as an important concept in the analysis and evaluation of development programmes.

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