Research On Intergovernmental Tax Competition Under Tax-sharing System Of China

Frequent flow of enterprise, human resources, and various economic activities triggered by Intergovernmental tax competition have effect on China’s economic operation,but also lead to new problem and new contradiction of regional economic coordinated development. In theory, the intergovernmental tax competition has positive effects on the economic and social development. The competition has been controlling mechanism on local government, and promote the government to improve office efficiency, innovate incentive system, so as to promote economic growth, improve the welfare level of the area. But the intergovernmental tax competition will also bring about many negative effects, such as creating loss of tax revenue, shortage of public products, industry convergence, repeated construction, and environmental pollution. These seriously departure from the law of division of labor and take advantage of area. And these do harm to the normal order of market economy, the economic structure imbalance, the national economic stability and sustainable growth.Based on the clarification of the concept of tax competition and classification of tax mechanism, this paper analyses the new development and change of the scope, object and means of tax competition between local governments since China carried out the system of tax distribution. It holds that the tax competition between local governments aims for capital and labor force. Especially after2009, the competition object changes from foreign capital as "the only thriving one" to foreign capital, private capital and state-owned asset as "three big parts". The primary means of tax competition also changes from seeking the central government for all kinds of tax preference, charges and fees reduction, financial subsidies and relaxing law enforcement, etc. to reducing the actual tax burden of enterprises to attract the liquidity tax base from finance expenditure control. The game between the central and local governments constitutes the external conditions for the tax competition between local governments and has a profound impact on local government tax-competitive behavior.In the empirical research of tax competition, spatial econometric model adopted and income tax burden of listed companies chosen as proxy variable of tax competition, the overall result is the actual income tax rates of all samples in2009is just15.63%, far less than25%of the legal tax rate. It is obtained by first order analysis that tax strategy responses are obvious between adjacent areas and by second order analysis it is shown that strategy responses between not directly adjacent areas still exist, but the response effect is less obvious than space matrix in adjacent areas. And by panel data regression model it analyses the tax competition economic performance from1994to2008and gets positive regression coefficients—respectively obvious at10%and5%, which indicates that in local areas the positive effects of tax strategy are greater than the negative effects.Although fierce tax competition promotes high-speed growth of Chinese economy, excessive tax competition produces tremendous impact on China’s economic operation and system regulation. Many serious problems have arisen with the development of Chinese economy—widening east-west economic development gap, converging of regional industry, increasing burden of environmental protection, seriously unbalanced structure of public goods, accumulating local financial risks, distorted tax burden, violation of the principle of equity, and the like—breeding a series of political, moral,legal and other issues.As to tax competition "double-edged sword" effect, how to promote the beneficial and abolish the harmful depends on the adjustment and reform of the institutional framework. First, China must handle the financial centralization and decentralization relationship, clearing the division of the property and governance among the government at all levels; it must completely change incentive mechanism of government officials, reversing the tendency of opportunism; it must further reform the transfer payments system, equalizing government finances. Most urgently, it must release local government from "land finance" Moreover, it must reform present tax system and its collection and management system, making tax competition stable, standard and moderate.Therefore, this paper suggests that China should accelerate the transform of government function, strengthen democracy and the legal system construction, promote the proper decentralization between the central government and the local government, adjust government revenue structure, optimize the tax system design and management, facilitate the free flow of factors, establish the competition coordination mechanism and the like, in order to perfect tax system and regulations.