Empirical Research On The Investment Impulse Of Local Government Under Tax Allocation System

After 1978,the Reform and opening of China changes its planning economy into market economy. During 30 years,Chinese economy grows rapidly and continuously and GDP per capita in China with a average rate of 9.8 percent reaches 4000 dollars.This achievement is supposed"Chinese Miracle".However,Chinese economy is extensive growth,which is dependent on large factor of production,especially capital.During a long time,investment is the most important resource of Chinese economy growth. The same time,the investment of local government which is a large proportion of total social investment not only promotes economy grow,but also result in redundant construction,overcapacity and economy fluctuations. Therefore,the study on the investment of local government is significant for macroeconomic control and economy stability.The investment impulse local government is related with current fiscal decentralization,the appoint and dismiss of local officials and its assessment criteria. Fiscal decentralization means the power of revenue and expenditure is distributed between central government and local government. Current literature of fiscal decentralization agree on that decentralization can promote economy increase,but empirical study haven't confirmed this conclusion. In 1994,tax allocation system which adjusted the fiscal decentralization greatly changed the constraint and incentive of local government. Besides,central government is the key of the appoint and dismiss of local officials via the assessment criteria of relative rate of GDP which results in the competition for growth among locals. Then,the thesis supposes two hypothesis to be test:(1) the stronger the control of central government on the appoint and dismiss of local officials,the greater the investment impulse of local government;(2) with the same necessity of expenditure,the less the revenue share of local government is,the greater the investment impulse and the incentive to develop economy of local government is.Based on the Chinese governance system and fiscal decentralization,the author proposes two The thesis used panel data model with the datum of 28 provinces during 1994-2008 to test the two hypothesis. The investment of local government is the dependent variable,and local fiscal decentralization,competition among locals,local economy growth,the reform of stated?enterprises and taxation reform are variables. The result confirmed the hypothesis,which is also fit for subdivision data of the east,the west and the central.At last,according to the analysis of the earlier,the author proposes some policy proposals: (1)to improve appraisal system of performance of local officials and decrease the weight of GDP index;(2)to build efficient supervision of resident for local officials to constrain the investment of local government;(3)to modify fiscal and tax system and keep balance of powers of revenue and expenditure between central government and local government.