FDI timing: Entry cost subsidy versus tax rate reduction

This paper examines and compares the effects on foreign direct investment timing of two most common types of fiscal incentives-entry cost subsidy and tax rate reduction. We show in the propositions the relation between the expected present value of these two fiscal incentives and their respective FDI timing. One meaningful policy implication of our results is that, to accelerate FDI, a host government should adopt entry cost subsidy rather than tax rate reduction because the former is more economical and effective than the latter.