ABSTRACT
The preferential tax policies for foreign direct investment (FDI) in China were terminated by a tax reform in 2008. This article uses the provincial-level panel data for 1998‒2008 before the reform in order to study whether the tax incentive had been a significant determinant of foreign investment decisions. We find that market size and geographic location had significant impacts on the FDI inflow into China but the tax incentive policies were not a sufficient determinant of FDI inflow into China over the periods studied, which provides a rationale for the termination of the tax incentives in FDI at 2008 reform in China.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 See Hunady and Orviska (Citation2014), James and Van Parys (Citation2010) and Van Parys (Citation2012) for more details. Also Echandi, Krajcovicova, and Qiang (Citation2015) provides a review of literature on the impact of investment policy.
Hunady, J., and M. Orviska. 2014. “Determinants of Foreign Direct Investment in EU Countries— Do Corporate Taxes Really Matter?” Procedia Economics and Finance 12: 243–250. doi:10.1016/S2212-5671(14)00341-4. James, S., and S. Van Parys. 2010. “The Effectiveness of Tax Incentives in Attracting Investment: Panel Data Evidence from the CFA Franc Zone.” International Tax and Public Finance 17 (4): 400–429. doi:10.1007/s10797-010-9140-1. Van Parys, S. 2012. “The Effectiveness of Tax Incentives in Attracting Investment: Evidence from Developing Countries.” Reflets et perspectives de la vie économique 2012/3: 129–141. doi:10.3917/rpve.513.0129. Echandi, R., J. Krajcovicova, and C. Z. W. Qiang. 2015. “The Impact of Investment Policy in A Changing Global Economy: A Review of the Literature.” Policy Research Working Paper 7437, World Bank, Washington, DC. Additional information
Funding
Hsu is grateful for the financial support from GRIPS Policy Research Center, Nomura Foundation and JSPS KAKENHI [17H02537].
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