| The past four decades have witnessed a rapid growth of economy,a deepening degree of marketization,a sustained rise in the level of urbanization,a remarkable increase of income in China and great achievements in building a well-off society in an all-round way,making a historic leap from having only adequate food and clothing to leading a well-off life.In this process,finance,as the foundation and important pillar of national governance,provides the basic incentive mechanism for the deepening of China's reform and development.Adjustments to the fiscal rules and management system will inevitably lead to changes in the incentive mechanism,triggering changes in the government's fiscal self-sufficiency,the incentive mechanism for regional competition and inter-governmental communication and coordination,which in turn will have a profound impact on economic and social development.In previous studies,the greatest challenge in scientifically answering the question of the impact of intergovernmental fiscal relations on the economy and society has been to deal with the endogeneity of indicators such as decentralization.It has been argued in the literature that the existing decentralization indicators are all somewhat flawed,reflecting more the results of decentralization in terms of economic data,and do not accurately measure the fiscal autonomy of local governments and their fiscal relations with each other.As an exogenous quasi-natural experiment,the province-managing-county(PMC)reform,provides us with the opportunity to test the causal effects of changes in the government management system and fiscal relations on economy and society.The research idea of this thesis originate from several questions raised in the process of promoting the PMC reform: firstly,what exactly is the PMC reform and what are the specific contents of it;secondly,how does the PMC reform affect local governments' budgetary revenue behavior,and what are the incentives and channels of this influence;thirdly,how does the PMC reform affect local governments' extra-budgetary revenue behavior,and what is the heterogeneity of this influence among different types of local governments.Fourth,how the PMC reform affects local governments' fiscal expenditure behavior,and what are the mechanisms and channels of this influence.This thesis attempts to explore these issues in depth.Based on the literature,this thesis focuses on the following work:Firstly,we will review the theories and policies on the PMC reform and introduce the empirical methodology and econometric model of this thesis,so as to build the foundation for the following empirical study.This thesis reviews the theoretical origins and the current status of research on the PMC reform,and compares and summarizes the existing literature from three perspectives: the theory of fiscal decentralization,the theory of flattening the management level,and a review of research on the practice of PMC reform.Then this thesis reviews the background and specific contents of the PMC reform,and analyzes the specific policies of the PMC reform in Hunan Province as a case study,so as to deepen the understanding of this reform and build the foundation for the empirical study in the following article.Finally,this thesis introduces empirical methodology and econometric model,and randomly processes the samples of the PMC reform,so that the sample meets the requirements of the difference-in-difference econometric model and provides tools for the following empirical study.Secondly,this thesis empirically studies the impact of the PMC reform on local tax administration,and explores the incentive factors and channels of this impact.This thesis deepens the analysis of this issue from two aspects.First,it further explores the possible paths through which local governments influence tax administration under the PMC reform.By distinguishing between regional differences in economic development,city-county relations,and types of enterprise ownership,the results of this thesis show that differences in competitive ability and pressure lead to different intensity of tax administration by local governments,and that the intensity of tax administration by local governments differs for different types of ownership enterprises,suggesting that there are differences in the pathways through which the PMC reform affects tax administration.Second,a more complete sample is used to fully assess the tax administration effect of the PMC reform.To ensure the reliability of the findings,the thesis uses the most complete geographical and time span sample to fully demonstrate the general and lagging effects of the PMC reform,which peaked in 2007-2009.The thesis uses a database of Chinese industrial enterprises from 1998-2012,covering 24 provinces,1808 counties and 343928 enterprises.In fact,this thesis obtains different results,which shows the necessity of using complete samples.We find that China's PMC reform significantly increases the tax collection and administration level of county-level tax agencies.Further analysis shows that the increase in tax collection and administration after the reform mainly comes from local taxation bureaus.In addition,firms located in under-developed western and middle regions experienced more increases in enterprise income tax payment,implying that local governments in shortage of financial resources and facing low level of fiscal competition due to high capital mobility costs prefer to improve their tax collection.Counties with “weak city-strong county” are more likely to increase tax collection.Empirical analysis also shows the evidence that local governments are more likely to intervene with the tax administration to private-owned firms than to other types of firms.Thirdly,this thesis empirically studies the impact of the PMC reform on municipal investment bonds,and explores the heterogeneity of this impact among different types of local governments.Compared to previous literature,this thesis makes two main contributions: first,it provides direct evidence on the relationship between local autonomy,fiscal cost shifting and local government debt.Most of the previous literature that has studied local government debt from the perspective of intergovernmental fiscal relations has used decentralization indicators and debt that are prone to the endogeneity problem of mutual causality.The PMC reform has exogenously changed the administrative and fiscal management relationship between provinces,prefectures and counties,and the competitive incentives have changed,which provides a good quasi-natural experiment to better study the causal relationship between local autonomy and local government debt.Second,this thesis adds to the literature examining the impact of the PMC reform from two perspectives.On the one hand,this thesis is the first study to assess the policy effects of the PMC reform from the perspective of municipal investment bonds.The existing literature assessing the effects of PMC reform has mainly focused on local economic growth,regional livelihoods and the quality of public service provision,and lacks a focus on the effects of the PMC reform on local government debt.On the other hand,this thesis enriches the literature on the impact of fiscal self-discipline at the prefecture level on the PMC reform.Previous literature has focused on county-level government behavior,and the literature examining the impact of the reform on prefecture-level government finance is insufficient.In particular,the few papers that have studied the impact of PMC reform on prefectural fiscal self-discipline have focused on tax administration or fiscal expenditure expansion,but not on deficits or debt,which are the most important issues in assessing fiscal self-regulation.This thesis employs panel data of Chinese municipal investment bonds from 2006 to 2015 to evaluate the influence of the PMC reform on local government debt.We find that prefectural governments will be more fiscally disciplined after the PMC reform,which will restrain the expansion of municipal investment bonds.Further analysis shows that the inhibition effect is more pronounced for prefectural governments with low fiscal transparency.In addition,prefectural governments with “weak city-strong county” are more likely to restrain the expansion of municipal investment bonds.From the perspective of regulation,State poverty counties have long been under the supervision of the central and provincial governments,and therefore municipal investment bonds of prefectures with State poverty counties have not decreased significantly after the PMC reform.This thesis provides a useful supplement for the analysis of the impact of increasing local autonomy and decreasing vertical fiscal imbalance on local government debt.Fourthly,this thesis empirically studies the impact of the PMC reform on the fiscal expenditure of county governments,and explores the mechanisms and channels of this impact.Previous literature has studied the impact of the PMC reform on the expenditure behavior of county governments,but the analysis of the mechanisms and channels of impact is not deep enough and the sample data is not comprehensive.This thesis deepens the analysis of this issue from two aspects.First,it further explores the possible paths for local governments to adjust their fiscal expenditure under the PMC reform.By distinguishing between regional differences in economic development,city-county relations,and the intensity of regional competition,the results of this thesis suggest that differences in competitive ability and pressure lead to different local government fiscal expenditure behavior.Second,a more complete sample is used to fully assess the effects of PMC reform on the fiscal expenditure behavior of county-level governments.To ensure the reliability of the findings,this thesis uses the most complete sample of geographical and time span to fully demonstrate the general effect of the reform of the provincial fiscal system in the eastern,western and middle regions of China.This thesis uses panel data for 24 provinces and 1809 counties from 1995 to 2007 to produce different results,reflecting the need to use a complete sample.We find that China's PMC reform significantly increases the infrastructure expenditure of county governments.Further analysis shows that the increase in infrastructure expenditure mainly comes from the intense regional competition after the reform.In addition,Counties with “weak city-strong county” are more likely to increase infrastructure expenditure.Counties located in eastern and middle regions,which have relatively abundant financial resources and low factor mobility costs,prefer to expand education spending,but the increase is still much lower than that of infrastructure expenditure.In terms of the impact of the reform,county governments have prioritized urban development and expanded capital expenditure,while relatively neglecting investment in agriculture and rural areas.This thesis provides a useful supplement for the analysis of the impact paths and mechanisms of the PMC reform.Fifthly,based on the above analysis,this thesis proposes public policy recommendations.Based on the above analysis,this thesis puts forward policy recommendations for regulating the behavior of local governments in China,improving the local financial management system and promoting healthy competition among governments.First,strengthen the building of fiscal autonomy and cultivate fiscal self-discipline.These include:appropriately increasing the revenue autonomy of local governments;strengthening the local government tax system;standardizing the local government extra-budgetary revenue system;and improving the local government transfer system.Second,improve the performance assessment and evaluation system.Specifically,this includes: transforming the performance assessment and evaluation system with a GDP growth-only outlook;and appropriately adjusting the principal-agent relationship in China's politics.Third,rationalize the arrangements for the distribution of financial and administrative powers between the central and local governments and between local governments at all levels.Specifically,this includes:defining by law the financial and administrative powers between the central and local governments,as well as between local governments at all levels;the arrangement for the distribution of financial and administrative powers should be combined with the actual situation of each place. |
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