What are some of the policies that a government can use to encourage a positive investment climate?

Answer 1

We have a positive investment climate in the sense that US investments offer high returns. The trade deficit which is at an all time high is supported by overseas investors putting their money into US investments. What we need is to increase our saving rate. To increase savings the government should balance the budget so it is not part of the problem. The usual answer is to reduce taxes on capital income to increase the incentive to save.This has been done over the last decade but the saving rate continues to decline. The stagnation of wages is part of the problem because people are more likely to save an extra income they have not yet allocated to living expenses.

Answer 2

It really depends on what kind of investment your talking about. There are all different types of investment. Just some examples would be:

Subsidize: Like in the case of encouraging farmers to grow certain crops.
Modify Tarriffs: To encourage investment in your country and or discourage investment in another country.
Lower Taxes: Decrease in taxes like capital gains taxes.
Monetary changes: The federal reserve can lower interest rates which encourages people to invest. But theoretically can cause inflation.

In fact, a lot of the ways to encourage investment also have downsides.

Answer 3

The most important thing that can be done is to remove all of the current disincentives away.

There is a general economic idiom which states. What you tax you get less of; what you encourage you get more of.

So then, the biggest thing that can be done is to eliminate the income tax and replace it with a national sales tax. Eliminating all income based taxes will encourage to invest while increasing the tax on purchasers will take decrease the desire to spend converting some of the spending to investment.

There is a great web site that discusses this in further detail for those interested. www.fairtax.org