Abstract
Learning and comparing several tax incentives mechanisms from the western countries, using the standard analysis methods, we advance a new theory on improving the tax in China. In this paper, we compare three tax incentives tools, such as tax holiday, low corporate tax rate and investment tax allowances or credits. We found that the new investment tax incentives, such as the accelerated depreciation, the investment tax deduction and the investment tax credit, are better and more efficient than the usual tax incentives, such as tax holiday and low corporate tax rate. Especially, the investment tax credit encourages long-term investments and increases the machine, equipment and R&D investment.
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