Tunisia - Changing the structure of incentives

Report No. 9620-TUN Republic of Tunisia Changing the Structure of Incentives November 191l Countr Operations Division Country Department 11 Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY 4> -~~~ 7>, Ai ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~.. 4444 St7. .N'.~~~~~~~~~~, -e &~~~~~~44 we f m* fiW df U Ns . '4 V~~~~~ '~~~*~~Vbd  FOR OFFICIAL USE ONLY REPUBC OF TUIISI CHANGING THE STRUCTURE OF INCENTIS TABLE OF CONTENTS Page No. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . I. TRADE POLICIES AND INCENTIVES . . . . . . . . . . . . . . .1 A. INTRODUCTION . . . . . . . . . . . . . . . . . . . .1 B. TRADE LIBERALIZATION AND THE STRUCTURE OF INCENTIVES 1 C. LIBERALIZATION AND EXTERNAL TRADE . . . . . . . . . . 7 Trade Reform and Import Behavior . . . . . . . 7 Export Growth and Exchange Rate Policies . . . iO Export Behavior . . . . . . . . . . . . . . . . 13 Implications of Accelerating the Trade Reform . 15 D. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . 15 II. FISCAL INCENTIVES FOR INVESTMENTS AND EXPORTS . . . . . . . 19 A. INTRODUCTION . . . . . . . . . . . . . . . . . . . . 19 B. RECENT TAX REFORM . . . . . . . . . . . . . . . . . . 19 Calculating Tax Wedges . . . . . . . . . . . . 20 C. INTERNATIONAL COMPARISONS . . . . . . . . . . . . . . 24 D. INVESTMENT INCENTIVES .26 Incentives to Foreign Investors . . . . . . . . 28 E. CONCLUSIONS .31 III. FINANCIAL INCENTIVES TO INVESTMENT AND EXPORTS 34 A. INTRODUCTION . . . . . . . . . . . . . . . . . . . . 34 B. THE FINANCING OF CORPORATE INVESTMENT . . . . . . . . 35 C. REGUIATORY CONTROLS ON THE BANKING SYSTEMl 37 D. EXTERNAL FINANCING .41 This report ws prepared by a mission which visited Tunis in November 1990o Th mission conpift d of Miria Figato (Task Manager), Azita Amjadi, Riccardo Faini. Olivier Godron and Henri Lamotte. Michael Devereux and Mark Pearson prepared a background paper for Chapter II. At the time this report was prepared Kemal Dervis was the Director and Mahmood Ayub was the Division Chief. H614ne Talon typ the report. I This, do-urr-nt h '