Tax Expenditures, Regulatory Quality, Rule of Law, and Foreign Direct Investment: Political Stability as Moderator
DOI:
https://doi.org/10.54099/ijdms.v3i2.1965Keywords:
tax expenditure, regulatory quality, rule of law, foreign direct investment, political stabilityAbstract
This study aims to examine and analyze the effects of tax expenditures, regulatory quality, and rule of law on foreign direct investment inflows, with political stability as a moderating variable, across nine developing OECD member countries and key partners during the 2016–2022 period. This study employs a quantitative method using secondary data analyzed via panel data regression using the Random Effects Model (REM) approach. The results of the panel data regression analysis indicate that tax expenditures and rule of law have a positive effect on foreign direct investment, while regulatory quality has a negative effect on foreign direct investment. Furthermore, the results of the moderation analysis show that political stability does not moderate the effects of regulatory quality or rule of law on foreign direct investment. Political stability weakens the effect of tax expenditures on foreign direct investment. These findings imply that OECD developing countries governments need to formulate and evaluate the effectiveness of tax expenditure policies for foreign investors to increase foreign direct investment and improve the overall quality of governance by evaluating each regulation and ensuring rule of law regarding those regulations, as well as maintaining political stability.
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