Tax Policy for Investment

The Policy Framework for Investment (OECD, 2006) proposes guidance in ten policy fields, including tax policy, to encourage policy makers to ask appropriate questions about their country's economy, its institutions, and policy settings in order to identify priorities, develop an effective set of policies, and monitor progress. A central challenge for tax policy makers endeavouring to encourage domestic and foreign investment, but with limited financial resources to commit, is a careful weighing of advantages and disadvantages of alternative tax policy choices and design options in meeting the twin goals of offering an attractive tax system, while at the same time raising revenues to support infrastructure development and other pillars of an enabling environment for investment. This paper reviews some of the main issues and proposes a set of questions for policy makers to address in formulating an appropriate tax strategy supportive of investment.