Tax Incentives, Competition and Welfare

The main objective of this paper is to analyze the impacts of the concession of tax incentives as a tool for entry promotion in a developing region. The simple model and the numerical example presented indicate that the adoption of tax incentives can cause very important effects. The productive structure could be heavily changed and production could increase improving conditions to consumers that benefit from the larger output and lower prices. Furthermore, the need for strategic action by the government in order to increase the chance of success of their development strategies is also emphasized, especially if one considers that firms often behave strategically.