Fiscal incentives and private investment in Côte d'Ivoire: an investigation using RPED Data.

Fiscal incentives are usually introduced in the investment function through the user cost of capital (UCC). This approach suggests that these measures and the other UCC's components act on investment through the same channels. However, in African countries and especially in CFA countries, the irrelevance of interest rates as major investment decision variable and the psychological effect of fiscal incentives might lead to a different transmission mechanism. This paper tests separately the impact of fiscal incentives on private investment. A simple model of investment is derived and estimated on 87 private firms of Côte d'Ivoire. The investigation do not reject the theoretical hypothesis that fiscal incentives might have a significant effect on investment behaviour in Côte d'Ivoire. However, the user cost of capital is irrelevant to capture such an effect. Moreover, demand uncertainty, captured trough the expectations variable appear to have influenced negatively investment decision. Finally, the estimations do not reject the "bad news principle" hypothesis.