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Tax incentives, private investment and employment: Evidence from an Ecuadorian reform

Abstract:

This paper estimates the effect of the Organic Law for Productive Development, Attraction of Investments, Generation of Employment and Stability and Fiscal Balance on new investment and employment applied in August 2018 in Ecuador. Using event study designs and difference-in- differences models, I find that the policy implementation does not have an effect on the attraction of new investments or the creation of new employment for prioritised sectors compared to non-prioritised sectors. This matters from a policy perspective in a country with few private investments and a high share of people out of formal employment.