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Frontiers of Economics in China

Front. Econ. China    2013, Vol. 8 Issue (4) : 552-570     https://doi.org/10.3868/s060-002-013-0028-6
Orginal Article
Fiscal Residuum and Localization of Foreign Direct Investments among Chinese Provinces
Giuseppe Lucio Gaeta1(),Salvatore Ercolano2,Elina De Simone3
1. Department of Humanities and Social Sciences, University of Naples L’Orientale, 80134, Naples, Italy
2. Department of Humanities and Social Sciences, University of Naples L’Orientale, 80134, Naples, Italy
3. Department of Economic Studies, University of Naples Parthenope, 80132, Naples, Italy
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Abstract

This paper examines the impact of fiscal residuum—the excess of expenditure benefits over tax burdens—on 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 1998–2004. 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.

Keywords China      foreign direct investments      fiscal residuum     
Issue Date: 05 December 2013
 Cite this article:   
Giuseppe Lucio Gaeta,Salvatore Ercolano,Elina De Simone. Fiscal Residuum and Localization of Foreign Direct Investments among Chinese Provinces[J]. Front. Econ. China, 2013, 8(4): 552-570.
 URL:  
http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0028-6
http://journal.hep.com.cn/fec/EN/Y2013/V8/I4/552
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Giuseppe Lucio Gaeta
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