Research On The Impact Of Fiscal Competition On Innovatio

The report of the 19 th National Congress of the Communist Party of China points out that innovation is the first driving force for leading development and the strategic support for building a modern economic system;at the same time,it points out that we should accelerate the establishment of a modern fiscal system,deepen the reform of the tax system and improve the local tax system.The development of innovation and fiscal system reform are two important issues in the new era of socialism with Chinese characteristics.In fact,there are important connections between fiscal relations and innovation.The externality of innovation means that innovation market must be supported by government finance,but fiscal support is not to interfere with the market at will.There is an appropriate boundary between the government and the market,which requires the balance between the decisive role of market allocation of resources and the role of fiscal support.However,the fiscal competition around GDP assessment between Chinese local governments breaks the tacit relationship between the government and the market,neglects the decisive role of the market in resource allocation,and intervenes excessively in the deploy of market factors of production.Although the goal of this kind of Chinese fiscal competition is only for GDP without innovation,it will change the factor cost and the market environment to result in the innovation problem,which will have an uncertain impact on innovation.Therefore,in order to speed up the reform of fiscal system and implement the innovation driven development strategy,we should link fiscal competition with innovation.Because mastering the relationship of fiscal competition between local government is the premise of improving local fiscal system,and promoting innovation is the key to promoting high-quality development,in order to improve local fiscal system,establish a modern fiscal system and promote high-quality economic development and transformation,we should attach importance to the relationship between fiscal competition and innovation,and analyze the advantages or disadvantages of fiscal competition on innovation.As we all know,considering that tax revenue and land transfer revenue are the two main sources of fiscal revenue for local governments,this paper analyzes the impact of fiscal competition on innovation from the perspective of tax competition and land competition.Specifically,this article raises two questions about the impact of fiscal competition on innovation:Firstly,to explore the impact of fiscal competition on innovation,the premise is how to measure and identify fiscal competition.In this paper,how should we identify and measure tax competition and land competition? Secondly,in terms of literature review,theoretical and empirical analysis,what kind of influence does tax competition and land competition have on innovation,namely,promotion or inhibition?First of all,tax competition and land competition are behaviors where local governments interact strategically through taxation and land transfer for certain goals.The indicators commonly used such as tax rates or prices of land transfer are only the result of multiple factors,and cannot individually and accurately reflect the strategic interaction between local governments.Therefore,only by finding suitable indicators to measure "competition" can we analyze the impact of "competition" in tax competition and land competition on innovation.(1)in the aspect of identification of tax competition,this paper uses the quasi-natural experiment about establishment of the National Special Economic Zones,combined with the boundary analysis to identify the tax competition of a “race to the bottom” among local governments.Compared with enterprises in the counties far away from special economic zones,national-level special economic zones are more attractive to the ones in the counties closed to special economic zones,which makes the counties adjacent to special economic zones under more pressure of tax competition.Based on the data from China’s Annual Surveys of Industrial Firms from 2000 to 2007 and the distance from each county to the nearest national special economic zones,this paper finds that there is the lower effective income tax rate in enterprises of the counties that are closer to the special economic zones.The difference in effective tax rates reflects the effect of “race to the bottom”.After that,in the empirical study of the impact of tax competition on enterprise innovation,the nearest distance between enterprises(in the district or the county)and National Special Economic Zones can be a good instrumental variable to measure tax competition.(2)In terms of identification of land competition,this paper proves that the price ratio of commercial and residential land and industrial land in different regions has the same equilibrium relative price through H-O Model(Heckscher-Ohlin model),which means that if the local government does not achieve land competition by depressing the industrial land price,the price ratios of commercial and residential land and industrial land in various regions are approximately the same.Therefore,the greater the price ratio of commercial and residential land to industrial land,it means that local governments are more likely to lower the price of industrial land for land competition,so that the price ratio can reflect and measure land competition.Based on the price ratio,the minimum price policy of "National Minimum Price Standard for Industrial Land Transfer" is further used as an exogenous impact.With the differencein-difference method,It avoids the endogenous problems such as missing variables and reverse causality,and accurately identifies that the improvement of land vicious competition can promote regional innovation.Then,on the basis of literature analysis,theoretical and qualitative analysis and the identification of tax competition,this paper uses the data of China’s industrial enterprises,the patent data of the State Intellectual Property Office and the data of the distance between the enterprises in each district or county to the National Special Economic Zones from 2000 to 2007,and empirically analyzes the impact of tax competition on enterprise innovation.In theory,tax competition can both promote and inhibit innovation,but the empirical results of this article show that tax competition among local governments in China has not significantly promoted corporate innovation.The empirical results are as follows:(1)control variables and all kinds of fixed effects can reduce the most of the problems of missing variables.If we do not add control variables and fixed effects,we will get the conclusion that tax competition can significantly inhibit enterprise innovation;after adding control variables and fixed effects,we will find that tax competition can weakly promote enterprise innovation.(2)However,after using the two-stage instrumental variable(namely,lndistance)method to further avoid the endogenous problem of reverse causality,this paper finds that the significant role of tax competition with simple OLS in promoting enterprise innovation has become insignificant.(3)After examining the mechanism of the impact of tax competition on enterprise innovation,we find that the insignificant impact of tax competition on enterprise innovation is not only because the positive and negative effects of various mechanisms offset each other,but also because tax competition can not significantly affect enterprise innovation through these mechanisms.(4)After the some robustness tests through the regression discontinuity design wih the reform of enterprise income tax in 2002,replacement of innovation variables or using innovation variables with two and three periods in advance,we find that the conclusion that tax competition can not promote enterprise innovation is still stable.(5)All the results of heterogeneous group regression show that tax competition does not significantly promote enterprise innovation.At the same time,on the basis of literature analysis,theoretical model,qualitative analysis and the identification of land competition,this paper uses the data of 280 prefecture level cities from 2003 to 2014,and takes the advantage of the reform of "National Minimum Price Standard for Industrial Land Transfer" in 2007 that restricts the viciously low-price competition of land between local governments,and uses the difference-in-difference method to study the impact of China’s land competition on regional innovation.In theory,too fierce and vicious land competition will inhibit innovation,and the empirical results of this article also show that the fierce low-price competition among local governments in China inhibits regional innovation,and restricting vicious low-price competition is conducive to promoting regional innovation.The results show that:(1)the minimum price policy of industrial land will improve the benign competition and promote more innovation in the areas with stronger dependence on low-price competition compared with ones with lower dependence.For "innovation driven growth",the current land competition is a lowquality competition.(2)The minimum price policy promotes regional innovation by improving the R&D investment of enterprises and restraining the rent-seeking of enterprises at the micro level,by increasing the government’s scientific and technological expenditure and improving the institutional environment at the macro level.(3)Further research shows that cities with higher geographical endowment,higher city level and national development zones are more positively affected by the policy of minimum price;moreover,the 2008 stimulus plan has a magnifying effect on the policy effect.From the perspective of promoting high-quality development,this paper provides empirical evidence for limiting the vicious competition of local land,and also provides policy enlightenment for promoting the transformation from vicious competition to benign competition.Finally,based on the empirical results of benchmark regression and mechanism analysis,this article puts forward some policy recommendations on the impact of fiscal competition on innovation and development.Theoretically,tax competition and land competition can both promote and inhibit innovation development,but the main empirical results of this article show that tax competition by local governments in China has not significantly promoted corporate innovation,and low-cost land competition inhibits regional innovation.There are two main reasons: Firstly,the long-term nature of innovation conflicts with the short-term competition of local governments around the rapid growth of GDP;Secondly,the fierce tax competition and land competition among local governments can not significantly stimulate innovation through positive mechanisms,but inhibit innovation through negative mechanisms.Therefore,we should change the way of political performance appraisal and standardize the financial competition of local governments.Instead of using simple elements as the performance evaluation criteria,we should build a multi-dimensional long-term evaluation system integrating "people-oriented","five-in-one",and "innovative development strategy".We should also attach importance to the innovation transmission mechanism.At the micro level,we should pay attention to the impact of financing constraints,human capital,rent-seeking activities,market competition and other mechanisms on corporate innovation;At the macro-regional level,we should pay attention to the impact of corporate R&D investment,enterprise rent-seeking,government science and technology expenditure,institutional environment and other mechanisms on regional innovation,so as to give full play to the leading role of superior enterprises and regions in innovation and promote high-quality economic development.The main innovations of this paper are as follows:(1)there are many literatures that explore the impact of fiscal expenditure competition,fiscal policy,tax burden,the price or forms of land transfer on innovation,while few scholars study the relationship between fiscal revenue competition and innovation.Scholars’ research on the relationship between fiscal revenue and innovation can only reflect the meaning of revenue,but not the meaning of "competition".In contrast,this research links fiscal revenue competition and innovation,and systematically studies the impact of fiscal revenue competition on innovation,especially tax competition and land competition,enriches the theory between fiscal competition and innovation,and supplements this literature.(2)This research has made some contribution in identifying fiscal competition,and has overcome the endogenous problems of common spatial econometrics and simple OLS in some literatures.By studying the policy and logic deduction,it is found that the method of quasi-natural experiment and discontinuous boundary analysis about establishment of the National Special Economic Zones can identify the tax competition more exogenously and accurately;it is also found that the ratio of commercial and residential land price to industrial land price can be used as a variable to measure the land competition,and the minimum price policy of industrial land can better and exogenously identify the impact of the improvement of the vicious land competition on regional innovation.(3)On the basis of identifying tax competition and land competition,the paper empirically analyzes the impact of tax competition on enterprise innovation and land competition on regional innovation,and explains the mechanism of fiscal competition’s influence on innovation from a micro and macro perspective.More detailed empirical analysis provides an empirical basis for regulating the role of fiscal competition in innovation and development.