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Fiscal Residuum and Localization of Foreign Direct Investments among Chinese Provinces

Author

Listed:
  • Giuseppe Lucio Gaeta
  • Salvatore Ercolano

    (Department of Humanities and Social Sciences, University of Naples L¡¯Orientale, 80134, Naples, Italy)

  • Elina De Simone

    (Department of Economic Studies, University of Naples Parthenope, 80132, Naples, Italy)

Abstract

This paper examines the impact of fiscal residuum¡ªthe excess of expenditure benefits over tax burdens¡ªon the location choice of foreign direct investments among China¡¯s provinces. Using data provided by the National Bureau of Statistics of China we propose two fiscal residuum indexes for China¡¯s provinces over the period 1998¨C2004. According to Buchanan¡¯s original definition of fiscal residuum a first index is given by the difference between government expenditure and revenue. A second index measures enterprises¡¯ net fiscal benefit and is calculated as the difference between public expenditure that affect business activities and taxes paid by enterprises. We found that the first index does not significantly affect the FDI localization choice while the second one positively affects it. When looking at different subsets of provinces we found that for eastern provinces the first index has a positive and significant effect. These results confirm the role of the net fiscal benefit as a determinant of FDI inflows at the provincial level.

Suggested Citation

  • Giuseppe Lucio Gaeta & Salvatore Ercolano & Elina De Simone, 2013. "Fiscal Residuum and Localization of Foreign Direct Investments among Chinese Provinces," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 8(4), pages 552-570, December.
    • Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:552-570
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0028-6
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    Cited by:

    1. Elina De Simone & Marcella D’Uva, 2017. "Social Support, Industrial Parks and FDI Location Choice Across Hungarian Counties," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(3), pages 1031-1045, September.

    More about this item

    Keywords

    China; foreign direct investments; fiscal residuum;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform

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