The Impact Of Financial Subsidies On The Development Of Enterprises Within The Jurisdiction

The relationship between government and market in the process of economic development is an eternal theme of modern economics.The economic catch-up and institutional transformation of developing countries are often interpreted and debated in the context of "the relationship between the government and the market".On the one hand,the basic direction of China’s economic reform was made clear at the third plenary session of the 18 th CPC central committee.On the other hand,"political tournaments" and "fiscal federalism" give local officials the incentive to develop the economy,while the model of taking GDP as the assessment target also gives local governments a strong incentive to intervene in the micro-economy.In the specific implementation process,the industrial policy consisting of fiscal subsidies and tax incentives are important "levers" for the government to intervene in the economy.Chinese governments at all levels actively use industrial policies to support the development of local enterprises,and the intensity of industrial policies keeps increasing.By the end of 2014,the number of policies and regulations related to industries had reached nearly 10,000.Since the tax sharing reform,tax collection and administration authority of the permissions to concentrate in the central government,local government independently formulate the preferential tax policy is limited by more and more,and corporate fiscal subsidies for local government is not only permitted by the central,and subsidies in selecting the object and to determine the subsidies at the discretion of the very high,this change makes the fiscal subsidies plays an increasingly important role in many means of government intervention in the economy.One immediate manifestation is a sharp expansion in the size of fiscal subsidies.Due to China’s unique budget "chunking system" and the lack of accurate records of fiscal subsidies in the existing database,few documents have measured the overall scale of fiscal subsidies in China.However,without understanding the fundamental issues of size,structure and distribution,there will be a lot of debate about subsidy policies.In fact,the debate on China’s industrial policy is a boundary debate between the market function and the government’s role.The key lies in the government’s support for enterprise development.In the case of unknown subsidy scale,it is impossible to judge the boundary and rationality of government’s intervention in the economy.Furthermore,the theoretical basis and fundamental purpose of local governments’ fiscal subsidies to enterprises is to promote the formation of enterprises’ "selfgenerating" capability,which needs to be tested in a long period.Existing research paradigms to evaluate the efficiency of fiscal subsidies are mostly to study the impact of fiscal subsidies on a certain aspect of enterprises in the current period,which may be the opposite of the impact of fiscal subsidies on the long-term development of enterprises.As an important supplement to the operating funds of enterprises,fiscal subsidies can quickly reduce the production costs of enterprises in a short period.However,whether fiscal subsidies can achieve the purpose of supporting enterprises needs to be tested in a long term,such as whether they can improve the production efficiency and profitability.From the overall perspective of policy evaluation,the effect of fiscal subsidy policy should also be determined by its "opportunity cost",that is,it is necessary to study the impact of subsidy policy on enterprises without subsidy.If the financial subsidy improves the performance of some enterprises at the expense of the development of most other enterprises,it is not in line with the pareto principle of improvement and overall welfare maximization.There is another problem that must be paid attention to.Most of the existing literatures emphasize the inefficiency of fiscal subsidies,so subsidy means should gradually withdraw from the "toolbox" of industrial policies.However,the reality is that the scale of fiscal subsidies is rising rapidly while they are operating inefficiently.The existing literature does not answer enough of these questions.It is based on the above observation of the reality and the literature review that this paper still focuses on the challenging topic of "the impact of fiscal subsidies on the development of enterprises",even though substantial research results have been gathered.Specifically,the main work of this paper includes the following four aspects:Firstly,this paper calculates the total amount and structure distribution of fiscal subsidies in China.Based on the 2008-2015 national tax survey database,through the added value,such as enterprise income and circulation index matching corresponding macro micro data,this paper estimated the scale of China’s fiscal subsidies for the first time,and the system of ownership,industry,economic attribute,enterprise scale,industrial policy objectives and the area and so on six aspects analyzes its structural characteristics.The study found that: China’s fiscal subsidy scale is huge and shows a rapid growth trend,reaching about 811.4 billion yuan per year on average,accounting for 7.22% of the total fiscal expenditure.From the perspective of structure,the allocation of fiscal subsidies is reasonable and unreasonable.First of all,the reasonable is that fiscal subsidies and is closely related to key national industrial policy,technology intensive manufacturing industry,has a surplus for increased subsidies support,the market economy developed areas of fiscal subsidies falling,show that fiscal subsidy policy mainly as a necessary complement to the market mechanism,rather than replace the market mechanism;Secondly,the unreasonable distribution of fiscal subsidies lies in the excessive subsidies received by traditional manufacturing industries,large enterprises and state-owned enterprises,which will aggravate the inequality among enterprises and curb the vitality of economic development.Finally,we empirically tested the factors influencing enterprises to obtain fiscal subsidies at the enterprise level,and found that in the post-financial crisis period,the weak macroeconomic environment forced the government to allocate fiscal subsidies to gradually become reasonable,preferring to support high-quality enterprises rather than protect loss-making enterprises.Secondly,this paper examines the effect of fiscal subsidies on the "self-generating" capacity of enterprises.It is found in the empirical study that the more subsidies the enterprises in the jurisdiction receive,the more likely they are to form excessive dependence on subsidies,reduce their profitability and become zombie enterprises supported by government subsidies.Since the measurement of zombie enterprises is mainly based on the actual profitability of enterprises in the long run,this result shows that fiscal subsidy policies are inefficient from the perspective of enterprises’ long-term development.Aiming at the causes of inefficiency,this paper returns to the essence of fiscal subsidy--fiscal expenditure,and explores the influence of regional financial financing structure on the efficiency of fiscal expenditure.It is found that the higher the proportion of transfer payments in the sources of regional financial financing,the lower the efficiency of expenditure of fiscal subsidies.The reason is that the "public pool effect" of transfer payments blurs the expenditure responsibility of local governments.Another logical question is,how do fiscal subsidies lead to poor corporate performance? The mechanism test of this paper finds that enterprises are more likely to make inefficient investment and increase expenses after obtaining fiscal subsidies,which are important intermediate channels for enterprises to lose their actual profitability.Thirdly,this paper examines the external effects of fiscal subsidies.Most of China’s massive fiscal subsidies go to competitive sectors,which can distort orderly competition in the market,affecting the operations of unsubsidised companies.The empirical results of this paper show that fiscal subsidies have an obvious crowding out effect on unsubsidized enterprises within the jurisdiction.The more fiscal subsidies and subsidies there are in the same region and industry,the lower the profit,total output value,investment,TFP and other performance indicators of unsubsidized enterprises will be.The root cause of the negative externality of fiscal subsidy lies in its destructive effect on the market competition mechanism,which is manifested as the double squeeze of unsubsidized enterprises in the factor market and product market,squeezing out the financing scale,r&d investment and product market share of unsubsidized enterprises.In addition,fiscal subsidies are equivalent to the protection provided by the government to existing enterprises and the setting up of barriers for new entrants.Therefore,fiscal subsidies also destroy the survival mechanism of the fittest in the market.Fiscal subsidies undermine market competition and reduce market vitality.Compared with state-owned enterprises,large-scale enterprises and highly concentrated industries,fiscal subsidies have a stronger crowding out effect on private enterprises,small and medium-sized enterprises and decentralized enterprises.Finally,this paper explains the riddle of China’s huge but inefficient fiscal subsidy from the perspective of "listing,collecting and spending".Under the current financial management system of our country,local governments have the responsibility of organizing fiscal revenue on the one hand,and on the other hand have higher authority in fiscal expenditure.However,promotion tournaments and fiscal and tax competition are likely to lead to narrow interest exchange between local governments and enterprises(zhou li ’an,2018).The empirical results of this paper found that under the tax pressure,local governments collected "excessive tax" to increase local tax revenue,and then returned it to enterprises in the form of fiscal subsidies next year.This makes the relationship between financial subsidy and enterprise tax payment become "listed,collected,listed and spent",which is reflected in the financial statements of enterprises and is the double high of tax and financial subsidy.However,the "excessive tax" returned in the fiscal subsidy is equivalent to the interest-free loan transferred by enterprises to the government in advance,which will not only lead to the inflated scale of subsidy,but also cause the performance of subsidy to be underestimated.This paper calculated the effect of "collecting and expending" on subsidy performance,and found that the promotion effect of financial subsidy on enterprise TFP was significantly increased when the excessive tax returned from financial subsidy was deducted.This conclusion implies that China’s huge fiscal subsidies are the result of a series of institutional factors,which in turn affect the true performance of the subsidies.In terms of methodology,this paper mainly adopts the research method of combining theoretical research with empirical research,and tries to integrate qualitative and quantitative analysis as much as possible,and seek truth by quantity reality.On the theoretical model,this paper builds a general analysis framework to analyzes the behavior characteristics of enterprises after obtaining fiscal subsidies,and introduces the "public pool mechanism" to explain the reasons for the inefficiency of fiscal subsidies in theory.On the empirical method,this paper applied many econometric Model,mainly has Fixed effects model,the nonlinear Model(Logit Model),a two-stage Least squares method,double Difference Model,and the mediation effect Model,based on the multiple Model estimation method ensures that the article conclusion robustness.In view of the endogenous problems caused by reverse causality,omitted variables,self-selection effect and other factors in the empirical results,this paper also adopts a variety of methods to solve them,including Instrument Variable looking for endogenous variables,Placebo Test,and exclusion of selfselection effect.The research conclusions of this paper are of great significance for the scientific evaluation of the impact of financial subsidy policies on the development of enterprises.The policy Suggestions formed on this basis provide the direction for the further optimization of financial subsidy policies in the future.In this paper,the research shows that China’s fiscal subsidies,there exist some prominent features in addition to the total structural problems,from the direct effects and indirect effects of enterprises within their respective jurisdictions,are lack of efficiency,not only led to the enterprise of excessive dependence on fiscal subsidies also caused greater destruction mechanism of market competition,enterprise survival space out without subsidies.The inefficiency of fiscal subsidies is largely due to the institutional factor of "tax overcollection".In order to optimize the fiscal subsidy policys in the future,we adopt multi-directional supporting reform measures.It includes strengthening the supervision of subsidies before,during and after the event to prevent triggering the moral hazard of enterprises,and formulating subsidy policies scientifically to avoid the crowding out effect of enterprises without subsidies.We will also strengthen the institutional and normative nature of subsidy policies to ensure that subsidies play their real role.