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Investment Promotion, Fiscal Competition and Economic Growth Sustainability

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Listed:
  • Bin Wu

    () (School of Economics and Management, Southeast University, Nanjing 210096, China)

  • Xuefei Xu

    () (School of Economics and Management, Southeast University, Nanjing 210096, China)

  • Zhenzhong Feng

    () (School of Economics and Management, Southeast University, Nanjing 210096, China)

Abstract

Local governments in China build development zones to attract investment. We develop a model of fiscal competition to examine investment promotion under centralization and decentralization. Our study shows that even when perfect information is not available, under the condition of an indivisible investment, a central government achieves the optimal investment in development zones and the best tax ratio for maximizing total welfare, whereas decentralized decision-making easily results in infrastructure overinvestment and tax erosion, which does harm to economic growth sustainability.

Suggested Citation

  • Bin Wu & Xuefei Xu & Zhenzhong Feng, 2018. "Investment Promotion, Fiscal Competition and Economic Growth Sustainability," Sustainability, MDPI, Open Access Journal, vol. 10(1), pages 1-12, January.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:1:p:45-:d:125112
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal competition; investment promotion; economic growth sustainability;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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