An Analysis On Economic Effects Of Tax Incentives In Host Countries

With the development of globalization from the 80th of the last century, the volume of FDI sky-rocketed to a new record, and the restrictive policies were replaced by incentive policies so that to attract FDI in many countries, in which tax incentive policies is one of the most frequently used methods. From the viewpoints of host countries, even though the effects of FDI-attracting tax incentives are very important , but it is only an indirect way to correct market failure, and overuse would lead to a distortion of resource allocation. From the viewpoints of the world, the effects of tax incentives are offseted by the restriction of international tax competition, so it is necessary for host country to evaluate completely economic effects of tax incentives by combining the situation both in the country and aboard, so as to ensure the realization of policy targets. For the most part, the estimation of validity of tax incentives is the conduction of policy, there is not still a complete and systematic analysis in academic study. In this dissertation, author will analyze the problem completely, systematically and deeply both in theoretical and in empirical sides, probe the internal peculiarities of tax incentives, so that to find out the factors which influence the effectiveness of tax incentives, and put forward some advices to prompt the validity of tax incentives.The structure of the paper is as follows: the 1st chapter focuses on the background ,the concepts and scope of this research, the literature review, the structure, the highlights and limitations. In the 2nd chapter, the theoretical analyses such as theoretic foundation, conduct mechanism, policy targets and policy tools are developed gradually. In the 3rd and the 4th chapter, economic effects of tax incentives are probed, the probation includes two parts: one is related to domestic effects, the other is related to international effects, in the 3rd chapter, the main topics include the domestic effects of tax incentives, the reason that induce the phenomenon of round-tripping foreign capital, and the correspondent policies for the government; in the 4th chapter, the main issue is the influence of international tax competition on effectiveness of tax incentives in host countries, what is more, the paper probes the judgment of moderate tax competition and international tax coordination. In the 5th chapter, author analyses different factors that influence the effects of host countries'tax incentives, the factors consist of the type of FDI, the different tax system in home countries, the investment environment and the accounting institution in host countries, the real tax rate and the WTO principles. In the 6th chapter, the dissertation probes the esitimate of effectiveness of tax incentives, several appraisal models are introduced into developing countries, the social cost-benefit analysis model is further analyzed, the influence of tax incentives on welfare in host countries and the mode of tax incentives that prompts technological spill-over are developed one by one in this sector, furthermore, a positive analysis on the validity of tax preference policies to attrace FDI in China is undertaken. In the last chapter, combining with the reformation on the Enterprise Income Tax in China, the possible effects of the reformation is probed. In this chapter, author focuses on the effects of the new Enterprise Income Tax to attract FDI, and proposes some suggestions to improve the tax system in China.