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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Qian WANG & Chunli SHEN & Heng-fu ZOU, 2009. "Local Government Tax Effort In China: An Analysis Of Provincial Tax Performance," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 203-236.
  • Handle: RePEc:tou:journl:v:29:y:2009:p:203-236
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    File URL: http://region-developpement.univ-tln.fr/fr/pdf/R29/9-WANG.pdf
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    References listed on IDEAS

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    1. Warner, Mildred, 2001. "State Policy Under Devolution: Redistribution and Centralization," National Tax Journal, National Tax Association, vol. 54(n. 3), pages 541-56, September.
    2. Nelson, Michael A, 1987. "Searching for Leviathan: Comment and Extension," American Economic Review, American Economic Association, vol. 77(1), pages 198-204, March.
    3. 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.
    4. Richard M. Bird & Jorge Martinez-Vazquez & Benno Torgler, 2014. "Societal Institutions and Tax Effort in Developing Countries," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 301-351, May.
    5. Leuthold, Jane H., 1991. "Tax shares in developing economies A panel study," Journal of Development Economics, Elsevier, vol. 35(1), pages 173-185, January.
    6. 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.
    7. 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.
    8. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
    9. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
    10. Robin Boadway, 2001. "Inter-Governmental Fiscal Relations: The Facilitator of Fiscal Decentralization," Constitutional Political Economy, Springer, vol. 12(2), pages 93-121, June.
    11. Warner, Mildred, 2001. "State Policy Under Devolution: Redistribution and Centralization," National Tax Journal, National Tax Association, vol. 54(3), pages 541-556, September.
    12. Michael Marlow, 1988. "Fiscal decentralization and government size," Public Choice, Springer, vol. 56(3), pages 259-269, March.
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    Citations

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    Cited by:

    1. Denis Nitikin & Chunli Shen & Qian Wang & Heng-fu Zou, 2011. "Land Taxation in China: Assessment of Prospects for Politically and Economically Sustainable Reform," CEMA Working Papers 431, China Economics and Management Academy, Central University of Finance and Economics.
    2. Song, Yang, 2013. "Rising Chinese regional income inequality: The role of fiscal decentralization," China Economic Review, Elsevier, vol. 27(C), pages 294-309.
    3. repec:cuf:journl:y:2017:v:18:i:1:wang is not listed on IDEAS
    4. Denis Nitikin & Chunli Shen & Qian Wang & Heng-fu Zou, 2012. "Evaluation of Land Taxation in China," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 489-528, November.

    More about this item

    Keywords

    TAX EFFORT; TAX CAPACITY; FISCAL REFORMS; FISCAL DECENTRALIZATION;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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