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Local Government Tax Effort In China: An Analysis Of Provincial Tax Performance

  • Qian WANG

    (School of Public & Environmental Affairs (SPEA) Indiana University Bloomington, Indiana)

  • Chunli SHEN


    (Central University of Finance and Economics, China)

  • Heng-fu ZOU

    (Shenzhen University, Wuhan University and Central University of Finance and Economics, China)

This paper aims to enhance the understanding of provincial tax performance in China, paying special attention to the recent fiscal reforms in the 1980s and in 1994. Using provincial panel data for the period 1986-2004, our analysis consists of two steps. First, a combined fixed time effects and random provincial effects model is used to analyze the statistical relationship between the tax share in GDP and economic and demographic variables. Results indicate that the decentralized fiscal system over the period 1986–1993 has had a positive impact on the tax share in GDP, whereas the recentralized fiscal system in the period 1994-2004 has had a negative impact. Second, provincial tax effort indices are calculated to estimate potential room for additional taxation. The findings from the analysis have important policy implications on the redistribution of fiscal resources as well as on the effectiveness of the tax administration.

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Article provided by Region et Developpement, LEAD, Universite du Sud - Toulon Var in its journal Région et Développement.

Volume (Year): 29 (2009)
Issue (Month): ()
Pages: 203-236

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Handle: RePEc:tou:journl:v:29:y:2009:p:203-236
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  1. Joweria M. Teera & John Hudson, 2004. "Tax performance: a comparative study," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(6), pages 785-802.
  2. Richard M. Bird & Jorge Martinez-Vazquez & Benno Torgler, 2004. "Societal Institutions and Tax Effort in Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0406, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Nelson, Michael A, 1987. "Searching for Leviathan: Comment and Extension," American Economic Review, American Economic Association, vol. 77(1), pages 198-204, March.
  4. Tao Zhang & Heng-fu Zou, 1996. "Fiscal decentralization, public spending, and economic growth in China," Policy Research Working Paper Series 1608, The World Bank.
  5. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  6. Jing Jin & Chunli Shen & Qian Wang & Heng-fu Zou, 2012. "Decentralization in China," CEMA Working Papers 546, China Economics and Management Academy, Central University of Finance and Economics.
  7. repec:ttp:itpwps:0411 is not listed on IDEAS
  8. Leuthold, Jane H., 1991. "Tax shares in developing economies A panel study," Journal of Development Economics, Elsevier, vol. 35(1), pages 173-185, January.
  9. Robin Boadway, 2001. "Inter-Governmental Fiscal Relations: The Facilitator of Fiscal Decentralization," Constitutional Political Economy, Springer, vol. 12(2), pages 93-121, June.
  10. Michael Marlow, 1988. "Fiscal decentralization and government size," Public Choice, Springer, vol. 56(3), pages 259-269, March.
  11. Michael Nelson, 1986. "An empirical analysis of state and local tax structure in the context of the Leviathan model of government," Public Choice, Springer, vol. 49(3), pages 283-294, January.
  12. Warner, Mildred, 2001. "State Policy Under Devolution: Redistribution and Centralization," National Tax Journal, National Tax Association, vol. 54(n. 3), pages 541-56, September.
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