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This paper examines the relative impact of tax incentives, trade policies, financial subsidy, real wage and real exchange rate on industrial investment and economic development over the past 40 years in Taiwan using an integrated cash flow model of industrial investments. The model is developed in such a manner that the movements of all the policy and macroeconomic variables are allowed to interact with each other in the economy. The results show that trade and macroeconomic policies are much more important than income tax or subsidized finance policies for the successful industrialization in Taiwan. The effects of the tax incentives and financial subsidy policies are minor in comparison with the impact of the fundamental trends in macroeconomic variables, such as the movement of the real exchange rate and the real wage rate.


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