Tax Competition Strategy Among Chinese Local Governments

Fiscal decentralization has molded the comparatively independent interests of local governments. The local governments need an amount of revenue to support their public spending. To maximize their regional interest, local governments will necessarily participate in the competition for economic and tax resource. Thus, the regional and intergovernmental tax competition comes into being.An effective government is required to ensure the efficiency of market economy. To adapt to the transition of economic system, Chinese government needs an efficient tax competition system. So it is meaningful to analyze the intergovernmental tax competition strategy for rectifying tax competition among local governments and setting up an effective tax competition system. This paper does an empirical analysis on the tax reaction function among Chinese provincial governments, using the data from 1978 to 2006, to analyze the tax competition strategy among Chinese local governments, and to make comparison between different regions during different periods.Chapter One does an overview of the theories and literatures on intergovernmental tax competition. Chapter Two analyzes the current condition and the reasons of the tax competition among Chinese local governments. Chapter Three does an empirical analysis based on tax reaction function. Chapter Four puts forward some advices for forming a sound circumstance for the healthy development of tax competition among local governments.