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Abstract

AZUERO ZUNIGA, Francisco; GUZMAN VASQUEZ, Alexander  and  TRUJILLO DAVILA, María Andrea. LEGAL STABILITY CONTRACTS IN COLOMBIA: AN ANALYSIS FROM INFORMATION ECONOMY AND POLITICAL ECONOMY. Innovar [online]. 2017, vol.27, n.63, pp.125-140. ISSN 0121-5051.  http://dx.doi.org/10.15446/innovar.v26n63.60673.

Colombian National Government created the Legal Stability Contracts (CEJ in Spanish) through Law 963 of 2005, arguing these were necessary in fostering investors' trust. By means of these contracts, taxation rules applicable to the signatory companies were kept constant in exchange of their commitment to perform an investment project and pay a premium proportional to the value of the project. However, Law 1607 of 2012 (tax reform) expressly repealed Law 963 of 2005, so these contracts are no longer subscribed. It is of great interest to assess the rationality of the Government and the signatory companies in signing these contracts. This article analyzes CEJs from the perspective of information and political economy, and states they were created by Colombian Government with the aim of maximizing investment levels in the short term by offering tax stability, though it was known this measure could not be sustainable over time; which can be understood as a problem of intertemporal consistency of the tax authority. In addition, these contracts may have generated a divergence between the maximization of existing physical capital (the purpose of a benevolent government) and the increase in the flow of new investment (the goal of a government looking to "show results").

Keywords : Taxation; investment incentives; contracts; legal stability.

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