Investment incentive is a government-implemented incentive policy aimed to encourage investors into its domestic market or to promote expansion of existing businesses.[1] Investment incentives encompass creating an environment that enables foreign businesses to operate profitably and decreases risks.[2] They are widely used by developing countries to attract investments.[3] The incentives take form of "direct subsidies (investment grants) or corporate income tax credits (investment credit) that compensates the investors for their capital costs".[4]
Scholars generally consider investment incentives to be inefficient, economically costly, and distortionary.[5]
In South Korea and Taiwan, over one-half of all foreign subsidiaries benefit from some form of investment incentive, which is more than most other developed countries (Japan 9%, Switzerland 12%, Canada and France 18%, Germany 20%, Belgium 26%, Italy 29%, UK 32%, Australia 37%).[6]