Fiscal pressure and local economic growth--An experiment from China income tax sharing system reform

In this paper,we construct an“as-if”DID model on the basis of the 2002“Income Tax Sharing System”reform and evaluate the changes in local fiscal pressure based on an exogenous shock that redefines the tax sharing rules between the central government and local governments.By using the DMSP/OLS satellite data at the city-level,we empirically examine the impact of fiscal pressure on the economic growth.We find that fiscal pressure significantly increase the satellite lighting.Furthermore,we obtain the findings as follows.Firstly,the incentive effects of fiscal pressure effects are less profound in cities that receive considerable intergovernmental transfers from high levels of governments.Secondly,the local governments are more likely to help the growth of real estate industry,which can reciprocally bring them considerable sales taxation.However,this homogenized growth pattern might be detrimental for economic diversification and finally enhance the risk of economical fluctuation.Finally,the fiscal pressure created by the reform restricts the extent to which jurisdictions compete with each other.However,the tax competition still exists because local governments are able to lower the tax rate once they gain enough revenues from land-sales.This paper provides a new explanation for China’s high-speed growth in addition to expenditure decentralization or administration decentralization.It also offers extra evidence for exploring the growth incentives of local government within the framework of China’s decentralization.

Tax Sharing and Fiscal Imbalances:Reconstruction of the VAT Sharing System in China

Unreasonable distribution of regional fiscal revenue may lead to fiscal imbalance,while narrowing the fiscal gap will help to establish a modern fiscal relationship between the central government and local governments with fi nancial coordination and regional balance.This paper examines the 2016 VAT sharing reform to study the impact of tax sharing on fiscal imbalances,and puts forward a new plan to reconstruct the VAT sharing ratio.It has been found out in the study that the VAT sharing reform has alleviated the vertical fiscal imbalances caused by the reform of“replacing business tax with VAT”to some extent,but has aggravated the horizontal fiscal imbalances and widened the regional fiscal gaps.The deepening of horizontal fiscal imbalances is due to the aggravated differentiation of regional fiscal capacity after the VAT sharing reform.The adjustment of the principle on which the VAT is levied and the way by which it is shared is conducive to reducing interregional fiscal imbalances.This research is of reference to rationalizing the intergovernmental fiscal relationship,which is helpful to further clarify the implications of modern intergovernmental fiscal relationship and promote the construction of a modern fiscal system.

A contract theory analysis to fiscal relations between the central and local governments in China

We use a contract theory/mechanism design framework to analyse the fiscal relations and reforms between the central and local governments in China,which are said to have made great contributions to economic growth since the‘economic reform’.First,we present the mechanism(a fiscal incentive contract model),which has created incentives for the development agent(local government),and clarify theoretically how the concept of bao(contract)works.We then comprehend the concept of bisai(contest)within the framework of the yardstick competition between local governments,and review the mechanism which encourages proper information revelation through intergovernmental comparison and competition.Lastly,we make a theoretical comparative analysis on the fiscal system reform(from the fiscal contracting system to the tax sharing system),from the perspective of how much room was left for the‘ratchet effect’in the dynamic relation between the central and local governments,and how it was solved(or mitigated)in the two fiscal systems.