Abstract Given the bi-directional mechanism between tax and FDI, this paper empirically analyzes the non-linear relationship between tax and FDI, and the effect of social expenditure and its structure on FDI by constructing a simultaneous equations model to based on provincial panel data from 1990 to 2010. The result shows that foreign capital doesn’t regard tax incentive as a dominant factor during the location selection process at present, but pays more attention to the local’s social expenditure level; Social expenditure has a positive effect on the inflow of FDI, and the higher is the level of social expenditure the lower the overall impact of tax on FDI; there exists an inverted “U”-type non-linear relationship between tax and FDI; the structure of social expenditure has different effects on the inflow of FDI, technology and human capital expenditure has a positive effect, whereas social security and employment expenditure has an insignificant effect.
ZHANG Xian-Feng,LEI Dan,ZHANG Yan. Tax Incentives, Social Expenditure and Foreign Direct Investment:An Analysis of Simultaneous Equations Model Based on Inter-provincial Panel Data. Economic Survey, 2013, 1(5): 053.
2013, Vol. 1 
