The “Statute for Encouraging Investment” was legislated in 1960. Since that time, government tax coffers have lost an estimated 150 billion NT dollars due to the provisions in the statute. This study employs time-series and cross section data on the private manufacturing sector in Taiwan to examine the incentive effects for investment produced by the statute.
Some of the major findings are summarized below:
(1) Using the OLS method to fit the time-series data reveals that the investment curve for private manufacturers shifted upward after the implementation of the statute;
(2)Using the OLS method to fit the 1976-77 cross-section data illustrates that sales is the most important variable in determining investment. Interest burdens and tax deductions are insignificant;
(3) The extension of tax credits for machinery and equipment from 1981 –83 increased investment by changing the timing of investment plans.
