This question seems to come up every time somebody shoots their first production overseas –– and I mean always. Even back in 1992, when I shot my first overseas job, the old-timers rolled their eyes at my naive enthusiasm for the experience.
Back in 1992, the US dollar was incredibly strong. And even though a lot of productions took advantage of the bargains available, it wasn't tax incentives that kept the production communities in Hollywood and New York viable. Didn't hurt, of course, but there are plenty of other reasons people will pay a premium to shoot there.
2) The look barrier. Sure, people in other countries can often look American. (The last time I was in Switzerland, I was stunned by how much more American they looked than Americans.) But that's just the white people. if you're looking for ethnic diversity, you might not find what you need. We couldn't find black people in any great numbers in Argentina. And there aren't a ton of Mexicans in Canada.
3) The look barrier, part 2. I once shot a job in Mallorca, part of which needed to look like an American suburb. How hard could that be, right? Turns out there's one house on the entire island that would play. We scouted Barcelona, too, to see if we could find other options there. Nothing. Thank God for the one house and some creative angles.
14) Stupid bureaucrats with weapons. I've had more than my share of arguments with armed airport personnel who insisted that my cans of film were not going to cross their border until each one was opened up and inspected by hand. Even in the age of digital production, there are still plenty of opportunities for some low-level bureaucrat to exert power in a way that costs you tens of thousands of dollars.
15) Hidden costs. In lots of places around the world, an outstretched hand isn't an offer to shake. And I'm not just talking about guys with leaf blowers who show up as soon as the camera truck pulls to a stop. In Morocco, for instance, it was amazing how many people claimed to be the king's brother-in-law.
I'm sure there are other reasons, but these are the ones that came to mind immediately. Anybody care to add to the list?