The Research Of Tax Competition Between Local Governments In China

Along with the global economy development, the liquidity of international resources and elements gradually strengthened. The development of economy couldn't do without resources. The contradiction between the two forced all countries to compete for limited resources to develop their economies. Similarly, there is also the same contradiction in the field of the revenue. The government has to provide better public products and services, improve the welfare in order to realize the functions, all these need financial capabilities to be certain guarantee. The tax is a major means of government revenue, however, the contradiction between the liquidity of tax base and the local government's financial demand, the demand to develop the economic for the performance assessments, all these force the local government to keep tax base even at any cost, this is called tax competition.Tax competition does not exist at the very start. In a centralized state, local governments, as the executors of the central policy more than the independent authorities, do not have true sense of tax competition between each other for there is no independent interest mechanism exists. After the reform and open, along with the fiscal decentralization promoted step by step, the local government have some discretion in powers and become more and more independent of interests gradually, these provide necessity for the local governments on tax competition. Since the 1980s, benefited from the transform from planned economy to market economy in China, the change of the marketing process is gradually speeded up and the market system is also initially built. This not only impelled the free flow of resources between the areas, but also closely linked together the economic interests. Economic development needs force local government put more attention to the jurisdiction of the economic development. The contradiction between the needs of the development of economy and the liquidity of regional resources, forced the local governments to use of all kinds of means to compete for tax revenue.Tax competition, as a kind of local government competition in the tax market, is like general market competition, and does not have good or bad points. Moderate tax competition can reduce governments'surplus, increase the taxpayers'surplus, improve the government's public service efficiency and promote the generation of new tax system. However, with the local government's economic development needs enhancing, tax competition between areas has exceeded the orderly scope, and produced tax competition outside the institution. The local government blindly reduces the effective tax rate in order to attract resources, which leads to the marginal cost of tax competition become higher than the margin profit of tax competition, and the low efficiency of local public products provide, and so that malignant tax competition produces. And the alienation of tax competition mainly refers to that the local governments directly take illegal means to carry out tax competition outside institution. All of these not only disobey competition principle, cause the informal flow of the elements, but also further increase the gap between rich and poor, at last they may have serious effects on many fields of the country's economic development. How to eliminate these illegal competitions and set a standard for inter-local tax competition in the most effective way is very concerned in the educational and politics circles. This paper attempts to use the general theory of tax competition, in combination with the actual development, to comprehensive analysis the cause of tax competition, and puts forward some policy suggestions.This paper is divided into four parts:the first part, introduction, mainly discusses the research background and research scope, the present situation of the research in domestic and foreign scholars, the paper structure and main content. The second part is overviews on tax competition theory between the local governments, first, the paper discussed the definition of tax competition by domestic and overseas scholars, then analyzed the theoretical basis of tax competition:taxes market theory, fiscal decentralization theory and evolution of the socialist system competition theory, finally, expounds the impact of tax competition:moderate tax competition has the positive effects of pathogens, the tax competition bring negative effect according to the different standards for tax competition classification. The third part is the analysis of the reality of inter-local tax competition, the formation of local government's competition ability and the needs of local officials for the development of the economy and so on.At present, the local governments in China have large tax problems in competitions within the institution caused by discriminatory tax policy and legal limits of authority, and also many kinds of tax competition outside the institutions. The tax competition outside the institutions exceeds the limits of taxation legislation jurisdiction, in the way of not only the number of competition, but also qualitative alienation in performance of tax preferential policy not strictly implemented, the local governments grant tax reductions or exemptions exceeding their authority. The fourth part puts forward some related policy suggestions on the standard analysis of inter-local tax competition according to the three parts above. Including reform financial system, adjust the tax preferential policy orientation, reform the performance appraisal system, strengthen the official tax supervision, constructing regional cooperation consultation mechanism etc.