吸引外国直接投资外文文献Optimal policy for attracting FDI Investment cost subsidy versus tax rate reduction.pdfVIP

International Review of Economics and Finance 53 (2018) 151–159 Contents lists available at ScienceDirect International Review of Economics and Finance journal homepage: /locate/iref Optimal policy for attracting FDI: Investment cost subsidy versus tax rate reduction☆ Yuan Tian Faculty of Economics, Ryukoku University, Kyoto, Japan A R T I C L E I N F O A B S T R A C T JEL classifi cation: This paper examines and compares two policies (investment cost subsidy and tax rate reduction) F21 for the host government to attract FDI. Taking into consideration the firms indifferent FDI option F68 value between the two policies, the government trades off the immediate and certain lump-sum G11 cost of the subsidy against the future random flow of tax rate reduction. We demonstrate that G13 the optimal policy for attracting FDI depends on the growth rate and the volatility of the profit as well as the discount rate. There exists a critical level in each of the three parameters. The tax rate Keywords: reduction (or investment cost subsidy) is preferable when the growth rate and the volatility of the Real options profit is higher (or lower), and when the discount rate is lower (or higher). These results are Foreign direct investment consistent with the empirical findings, whic