| With the implementation of tax sharing system reform in 1994,local governments in China had the residual control over fiscal revenue gradually.Therefore,governments couldplay games through the taxation measure to attract more resources for the construction of the region.The basic pattern of tax competition is focused on the tax preference level mainly.The general principle is that the tax is a burden for enterprises,if the tax is too high toexceed the replacement cost of the enterprise,the enterprise may relocate.Therefore,local governments have increased their own tax preferential to keep local companies and attract foreign enterprises.In theprocess of tax competition,where a local government is making tax decisions,the neighboring government would adopt a follow-up strategy,thus forming a tax “squatting” or tax “highland” phenomenon with the limitation effect of the policy.The previous works on intergovernmental competition mechanism usually focused on the strategy complementation(intergovernmental taxation competition)or strategy substitution(intergovernmental reverse tax competition)which was just one aspect of the subject.The contribution uses the analysis framework of dynamic games to discover and analyze the complementary and alternative competition mechanism of the inter-governmental policies.The taxation competition is taken as thecaseto analyze the theory quantitatively,that makes up for the deficiencies of past research.This article proceeds as follows:Firstly,based on the assumption that “the government is a rational person same as other actors”,the simultaneous action and sequential action game model is constructed separately to analyze and explain the different attitudes of attracting investment towards the eastern and central western regions in the process of industrial transfer in China.There is no establishedpractical model to imitate for China's economic system reform,the experience almost came from “cross the river by feeling the stones”.The general model is first piloted in some advanced provinces and then promoted to the others,the eastern coastal provinces and cities usually implemented at the first place,and then gradually promoted to the inner central and western regions that presentsa ladder structure.The authorization of the Chinese government also follows this model.Therefore,in the process of competition for preferential policies of local governments,the implementation of preferential policies may result in simultaneous actions(between provinces and cities that are opened or authorized at same batch).There might bethe situations in which a sequence of circumstancesarose(between the first open or authorized provinces and cities and those lateropened or authorized ones).Given the above considerations,simultaneous game and sequential game are constructed respectively.The results of the simultaneous game shows that the competition isgettingfiercer among the local governments that opened or authorized in the same batch,and there might be a situation of vicious competition,that is the so called “race to the bottom competition” hypothesis.The analysis results in the case of sequential games shows that the early competition will be more intense among local governments opened or authorized with different batches,but as the degree of competition increasesuntilthe cost of obtaining resources is too high,first opened or authorized local governments may choose to abandon competition,the possibility of tax rigidity may exist,but local governments that are opened or authorized later would still choose to adopt the competition policy,that is the so called “tax rigidity” hypothesis.Limited on the availability and rationality of the data,the article used the manufacturing data of 29 provinces(excluding Chongqing and Tibet)in China from 2004 to 2016,which available from the "China Statistical Yearbook" and the National Bureau of Statistics,and the samples were divided from the national to the sub-regions for regression analysis.The results of regression and robustness analysis shows that there is a significant strategic complementation between the internal and inter-governmental tax competitions in the country and sub-regions,and there might be a phenomenon of “race to thebottom competition”,which is consistent with the theoretical derivation conclusions of thesimultaneous game.In the case of sequential game,the nonlinear model of the non-equilibrium panel is used for regression analysis.The results showsthat there is a significant “U” type change trend between the first action government and the post-action government,which means as the degree of competition increases,The government that moves first will gradually withdraw from the tax competition due to the increase of competition costs,and then the post-action government will continue the tax competition strategy,which is in consistent with the theoretical derivation conclusions in the case of sequential games.Secondly,on the basis of tax competition model,the impact of tax competition on local economic development is analyzed.The game model of both simultaneous action and sequential action shows that there is an inverted “U” relationship between tax competition and local economic growth.Along with the increasing of tax competition,the initial tax competition is beneficial to the economy growth,however,when the intensity of tax competition reaches a certain value,tax competition is not beneficial to the economic growth.The threshold model based on internal data of eastern and central provinces and cities verifies this conclusion,that in the early stage of government tax competition,the economy will shows an upward trend as the degree of competition among governments increases,but once the competition reaches the peak,Competition will bring the negative effects of the economy,the more competitive the more “backward”.Thirdly,based on the model of Konrad and Kovenock(2009),a model of government-enterprise game is constructed to analyze the impact of local government competition on local industrial agglomeration.In light of the model of Konrad and Kovenock(2009),a game model of government and enterprise has been built,and the distinction of the two scenario in which the original enterprise can not be migrated and can be migrated has been made,we find out the inference that:(1)under the premise that the enterprise cannot be relocated,with the increase in the cost savings brought by the agglomeration economy andthe comprehensive competitive advantage,local governments with agglomeration economic advantages or the comprehensive competitive advantages tend to raise the tax rate,and vice versa,the regional governments with agglomeration economies or comprehensive competitive disadvantages tends to lower the tax rate so as to attract new investment as much as possible.Moreover,the difference of the present value of the future tax revenue between the two regions will increase with the increase in the cost savings due to the agglomeration economic advantage and the comprehensive competitive advantage.In equilibrium,the equilibrium tax expected by local governments with agglomeration economic advantages or comprehensive competitive advantages will be higher than the equilibrium tax expected by regional governments with agglomeration economies or comprehensive competitive disadvantages,so the local governments with agglomeration economic advantages or comprehensive competitive advantages can obtain additional taxes similar to differential rents.(2)As for the case that the enterprise can relocate,when the benefits brought by the agglomeration economy can make up for the cost of relocation,the equilibrium of the competition between the two local governments determines that the tax rate of the local government who has the location advantage is slightly lower than that of the location disadvantage.Where local governments with location advantages can retain old companies and attract new ones.Local governments with location disadvantages are unable to attract new investment location disadvantages and agglomerate economic disadvantages,still cannot attract new companies to invest.When the benefits brought by the agglomeration economy cannot make up for the cost of relocation,the game equilibrium of the competition between the two local governments determines that the local government with location advantage has a lower tax rate than the local government with location disadvantage,and thus the government with the location advantage can retain and attract both old and new companies.Local governments with location disadvantages can attract new investments,but they cannot induce old companies to relocate.Finally,using the mixed panel data from 2001 to 2016,the above conclusions were empirically analyzed and robustness tests were conducted to ensure the robustness of the research.The empirical results proved that the labor cost of enterprises has a significant negative impact on the agglomeration of manufacturing industry,and government support,environmental regulation intensity,openness,tax competition intensity,location advantage,GDP per capita,and infrastructure have produced significant positive effects on industrial agglomeration. |
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