Analyzing the Role of Tax Incentives in Advancing Inclusive and Sustainable Economic Growth Through Integrated Fiscal and Green Transition Approaches

Abstract

This review critically examines the effectiveness of tax incentives in promoting inclusive and sustainable economic growth. Tax incentives are widely used fiscal tools aimed at stimulating investment, fostering innovation, and addressing structural development challenges. Drawing on comparative evidence across developed, emerging, and developing economies, the paper explores their impact on growth outcomes such as GDP expansion, foreign direct investment, and sectoral productivity. It further investigates how incentives contribute to inclusiveness through employment generation, regional equity, gender and youth participation, and poverty reduction. The sustainability dimension is analyzed through the role of incentives in advancing renewable energy, low-carbon industries, and alignment with the Sustainable Development Goals (SDGs).

While evidence indicates that well-designed, performance-based incentives can generate significant economic and social returns, challenges remain in ensuring fiscal sustainability, avoiding dependency and inefficiencies, and safeguarding against revenue loss. Effective monitoring, evaluation, and compliance mechanisms emerge as critical determinants of success. The review identifies key research gaps, including limited causal analysis, insufficient assessment of distributional effects, and the underexplored intersection of tax incentives with global tax reforms and environmental justice. The study concludes that tax incentives, when integrated into broader development strategies and accompanied by transparent governance, can serve as powerful instruments for balancing growth, inclusivity, and sustainability in an increasingly complex global economy.