| Since the 1980's, economic globalization and regional economic integration has become an important feature of the world economy. Multinational corporations , as the main vector of foreign direct investment are also rapidly spreaded in the world. Foreign direct investment, which is often called FDI for short, played a significant positive role in the economic growth process for the host countries. On the one hand, FDI has a direct effect of the accumulation of capital for the development of the host countries so that it can provide the necessary funds for the host countries. On the other hand, FDI can promot the economic growth of the host countries through technology diffusion, human capital improvement and so on. Thus, governments in many countries especially in developing countries do a lot to attract as much FDI as possible. Various preferential policies have been adopted and tax incentives are one of the most widely used measures.A more systematic theory of FDI was formed in the 1960s. Different scholars did a lot of research on the question of FDI from different perspectives, and they formed several of theories. According to these theories, FDI is not completely exogenous but rather depends on several other factors such as market factors, cost factors, policy factors, natural endowments and infrastructure. Tax incentive is one of an essential component of the policy factors.Generally speaking, whether tax incentives can play a role in the inflow of FDI depends on two aspects, one is the sensitivity on tax incentive policies of multinational corporations, and the other is the tax systems in both the multinational corporations' home countries and the host countries. For the first aspect, the higher degree of the sensitivity on tax incentive policies, the more effect of attracting FDI inflow in the host countries. For the second aspect, the effect of the host countries' tax incentive policies will be offset unless there are tax sparing credit policies in the tax agreement between the host and the home countries.Since reform anf opening up to the outside world, China has implemented a series of tax incentives for FDI policy, but the effect of the implementation of the policy has been questioned by many scholars. In 2007 the new "Income Tax Low of The People's Republic of China for Enterprises" uniformed the income tax low for foreign enterprises and domstic enterprises. There were new concerns that whether significant reduction will be occur as much of the existing tax incentives will be phased out. This paper is going to clarify the effect of our country's tax incentives policy on FDI inflow. In this paper, labor costs, levels of economic development, market size, infrastructure, human capital and tax incentives will be adopted as the explanatory variables, the actual use of FDI as the dependent variable. And this paper will set up an econometric model based on the panel data of 47cities in 1987-2006. The analysis indicates a positive correlationship between the level of economic development, market size, infrastructure, human capital, tax incentives and FDI inflow. All the coefficents but that of the labor cost has passed the significant test.Through the sample on different data, we can inform a series of conclusion as follows: First, in the process of reform and opening up to the world in our country, the tax incentives played a positive role in the inflow of FDI. Second, the effect of tax incentives for FDI is more and more weak while the effect of other factors such as economic development, market size, infrastructure and human capital on FDI inflow are more and more significant. Third, there is a big difference between different regions in the spontaneous ability of attracting FDI. To solve those problems, first, more attention should be paid to the consideration between revenue neutrality and tax incentives. Second, we should optimize the FDI policy of tax incentives to improve the quality of capital. And last, investment environment should be improved to attract FDI. |
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