China's Tax Decentralization And Regional Economic Growth: 1998-2010

Taxing power is an important component of state authority, including the right of tax legislation, tax jurisdiction, tax revenue attribution. At present, the prominent problems existing in the field of taxation in China is that tax revenue is highly concentrated in the central government, which does not match the responsibilities of local government. The present tax decentralization model gives reverse incentives to local government, making local government reach out " grabbing hands " towards households and firms. Based on this background, this research on tax power reform focuses on tax financing rights, where the share of sharing-tax is at the heart of tax decentralization. The topic of how to make reasonable division of tax power between government at all levels, to optimize the allocation of resources, to stimulate the accumulation of production actors, and to promote regional economic growth, has very important theoretical and practical implications.First of all, proceeding from the definition of tax rights, and through the perspective of fiscal decentralization, this article recalls the changes of tax decentralization system, raising the current problems in the decentralized system. Next, from the perspective of international comparison, it draws inspiration and reference division of tax power reforms in China. Again, through the provincial panel data fixed effects regression of1998-2010, it discovers that tax decentralization had a negative effect on economic growth in China, which is particularly more significant in central and western regions. The division of corporate income tax has universally significant negative effects in all the regions. The effect of decentralization on economic growth of value added tax, business tax and personal income tax have strong regional disparities:value added tax index coefficients is only significantly positive in western region, business tax index coefficients is only significant in the central region, index coefficients of personal income tax is only significantly negative in western area. Finally, the article concludes that the present tax decentralization policy formed a reverse incentive on local government, which is not helpful to the accumulation of productive factors and regional economic growth. It then provides specific reform proposals.