Study On Impact Of Tax Incentives On FDI With Local Governments’ Competition

China gradually introduced a series of tax incentives to attract foreign direct investment to make up for the lack of capital in economic development at the beginning of reform and opening up. It has been proved that these policies effectively had attracted a large number of foreign direct investments and contributed to China’s rapid economic growth for all to see. In regional economic development of China, local governments carried out a variety of preferential tax policies to attract foreign capital to invested in the location for the realization of local economic growth target, and the structural problems foreign regional distribution has become more and more prominent.FDI tax incentive policy reformation has entered the implementation phase. It is necessary to carefully comb and analysis the tax incentives theory and scientifically demonstrate affection of tax incentives to attract foreign investment in China. especially the situation of local government competition can not change in the short-term, we hope to provide references and suggestions for the less developed regions to attract foreign investmentFirst, we reviewed and commented on the study of the relevant literature and explained the relationship among FDI tax incentives, local government competition and fiscal decentralization. Then, FDI distribution characteristics in China were showed after we introduced the evolution of China’s tax incentives. Finally, we found the stage characteristics of FDI tax incentives for foreign investment in the region on the basis of theoretical analysis and empirical analysis, and make relevant policy recommendations.The thesis was divided into five chapters. In the first chapter, we introduced the research background, purpose, meaning, and some important concepts to be elaborated and defined. then we put forward the ideas, methods of the study, and possible innovations and shortcomings about The thesis. the Second chapter is the literature review section of this article. FDI tax incentive theory and empirical researches of the domestic and foreign was introduced in this part. We also elaborated that main motive of local governments to attract foreign investment was achieve the growth target and fiscal decentralization is a necessary condition for the implementation of tax incentives to be elaborated. The third chapter describes the evolution of Chinese FDI tax incentives and regional distribution characteristics. The forth chapter was empirical analysis. We chose the city as the research sample and compared effect that FDI tax incentives were not executed with which were executed in underdeveloped cities. Then we also compared underdeveloped cities that implemented the tax incentives with developed cities but not implement the tax incentives. The thesis believes that the use of tax incentives existed in stage and regional characteristics. We draw our research conclusion and policy implications.With the reform and opening up, China had selected gradual reforming path, and gradually formed a government-led model of economic development. This thesis believes it is the main goal of government performance evaluation by the theoretical and empirical analysis that local governments attracted FDI to drive local economic growth in regional economic development, while the specific implementation of FDI tax incentives were the result of tax policy competition among local governments. Meanwhile, it is fiscal decentralization reforms endowing local governments discretion of FDI tax incentives that provided necessary conditions those local governments could implement preferential tax policies. The role of local governments that promoted the increase in the total FDI inflows by using preferential tax policy incentives, has characteristics on stage:when non-tax factors that affected FDI inflows were difficult to change in the short term or to change but not affect selection of foreign investment in the region, FDI tax incentives impact significantly. While cities’ or region’s economic development reach a certain stage, and tax incentives to attract foreign investment would be weakened with the economic improvement of the city or region. The importance of preferential tax policies could decline in the impact factors sort of foreign investors to determine investment. They would paid more attention to the overall local investment environment. So the less developed regions, such as vast areas of the Midwest, can not copy the experiences of developed areas, and should fully examine their own situation and clear the development stage of local economy and tax incentives timing. Along with the development of the local economy, local governments of less developed regions should focus on improving the overall investment environment then before. We also recommended targeted and promotion intensity of preferential tax policies for underdeveloped regions.According to the needs of the regional economic development and investment raising strategy adjustment, the paper argues that the basic orientation of FDI tax incentive policy adjustment was not a simple policy of reservation or cancellation.Tax incentives tools should been chosen scientifically through a gradual adjustment. The regulation targeted regional tax incentive system should be established. It would guide reasonable regional distribution of direct foreign investment and promote the balances of regional economic development.