The effect of tax competition on the foreign direct investment and the case of Turkey

With the increase in the mobility of production factors due to globalization; both developed and developing countries utilized foreign capital. Developed countries utilized in order to protect and increase market share; while developing countries utilized foreign capital in order to close the capital gap which contributes economic growth. This situation has caused significant changes in the tax policy of the investment attracted countries. Therefore, tax cuts, which is a major tax incentive related to tax competition, have become an important tool. Because, the changes made through the tax system consist of the variables that can be reacted in a short period of time and easily implemented by government. By this study, incentive policies and the effects of tax incentives implemented in Turkey with foreign capital investment decisions of companies have been investigated. In this context, the purpose of the study is to determine the efficacy of tax and tax incentives on the FDI investment decisions in Turkey. The development of foreign companies since 1980s operating in Turkey is under debate. Examining the major augmentation of foreign capital investment especially since the 2000s with the concept of tax competition, the relation between foreign capital investment and tax incentives have determined. In the first section; the restructuring process of Foreign Direct Investment in Turkey and all over the World has explained, while in the second section; properties of international tax competition has explained. In the third section; by examining adaptation process of newly developed tax competition, it is shown that the effects of the changes of corporate and income tax in Turkey to the actual entering of FDI national basis evaluations, number of firms , regional and sectorial distribution.