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How to explain the inverted U-shaped curve of tax centralization in China?

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  • Fang, Hongsheng
  • Guo, Lin
  • Shuai, Wenjun
  • Dong, Ye

Abstract

This paper uses popular approaches to measure fluctuations in tax centralization and the decomposition of changes in tax centralization to explain the inverted U-shaped curve of tax centralization in China. The results show that 1) during the 2002–2007 period, the within-sector effect played a dominant role in the increase in tax centralization and 2) during the 2008–2016 period, the between-sector effect was the main reason for the continued decline in tax centralization. To avoid this continued decline in tax centralization, we argue that the central government should ensure that the within-sector tax centralization of other services is not lower than that of the industry sector.

Suggested Citation

  • Fang, Hongsheng & Guo, Lin & Shuai, Wenjun & Dong, Ye, 2021. "How to explain the inverted U-shaped curve of tax centralization in China?," Journal of Asian Economics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:asieco:v:73:y:2021:i:c:s1049007821000117
    DOI: 10.1016/j.asieco.2021.101282
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    References listed on IDEAS

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    1. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
    2. Han, Li & Kung, James Kai-Sing, 2015. "Fiscal incentives and policy choices of local governments: Evidence from China," Journal of Development Economics, Elsevier, vol. 116(C), pages 89-104.
    3. Daniele Coen-Pirani & Michael Wooley, 2018. "Fiscal Centralization: Theory and Evidence from the Great Depression," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 39-61, May.
    4. Hongsheng Fang & Wenjun Shuai & Linhui Yu & Jun Zhang, 2019. "Is fiscal revenue concentration ratio in China too high?," The World Economy, Wiley Blackwell, vol. 42(7), pages 1932-1960, July.
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