The Impact Of Tax Policy On Business Investment

Investment, consumption and exports are driving "Troika" in economic growth, the investment fluctuations can cause fluctuations in total output, thereby affecting the fluctuations in the economic cycle, so investment is essential for the stability and development of a country. Tax policy is an important tool to regulate economic for a country, different type of enterprises in different areas in China enjoy different tax policies, and these policies would affect the investment of enterprises. So what exactly the tax policy affects the investment? What’s the different of the effective tax rate between different type of enterprises and areas? And how can we encourage enterprise investment and adjust regional development by tax policies? All these issues are worth of deep thinking and research.In the theoretical part, we choose the neoclassical investment theory of Jorgenson(1963) as our basic model, then add corporate income tax, sales tax and added tax to the model as the tax factors, in addition, we add local government behavior index to the model as the important supplement to the tax factors. In the empirical part, we divide30provinces of our country into three regions of eastern, central and western, and divide the type of enterprise into state-owned, private and foreign-funded, then form panel data joint with time series from2000to2011.With the panel data we explore the relation between tax factors and the investment of enterprises.Through the model checking, we can get the following conclusions:The tax factors does have a significant inhibitory effect on every type of enterprises in every regions. However, every tax factor has different effect between enterprises of different regions and types. The behavior index of the local government has a significant negative effect on every type of enterprises in every regions, so the higher the local government plunder the local enterprises, the greater the inhibition of the investment. Contrasting profitability of state-owned enterprises and private enterprises, we conclude that the government support for state-owned enterprises will promote its investment behavior. And we also find that finance costs has greater effect on private enterprises than profitability.