A Study On China’s Less-Developed Areas Participating In Horizontal Tax Competition

Eastern part of China has achieved rapid development with the advantageous policies from the early1980’s; it has attracted a tremendous amount of capital and labor force here which accelerates the progress of development. At the same time, the other parts of China were undergoing slowly economic growth. As the gap bet ween different parts became deeper and deeper, the central government realized th e importance of balanced development. Then, several plans that aimed at helping d eveloping areas were issued by central government. With the advantageous tax bee ame more dynamic in economy growth. Nowadays, we can find that the imbalance d development still exists between different areas due to several reasons. One of th em is that the self-funding level in developing areas is much lower than developed areas, which suggests local governments in poor areas cannot spare much of the fis cal revenue out in tax competition. Another reason is that revenue departments in p oor areas bear much more pressure than those in rich areas. From the analysis abov e, we can conclude that developing areas are in the unfavorable parts when compet ing against developed areas in tax revenue.Governments at different levels or places participate in the tax competition to obtain more economy resources or tax sources by lots of legal and illegal means. I n China, the authority of tax administration is almost totally enjoyed by central go vernment, which leaves quite little space for local governments to adjust tax rates or tax bases. With the expanding tendency of governments and the misleading appr aisal system for governmental officials’achievements, local government is eager f or resources to develop. Then, they turn to illegal ways to attract economic resourc es. Although they are contrary to the law, they can be effective to some extent as1ocal government is in charge of the detailed administration. All the facts above bri ng out more and more tax competitions in our country. Compared with market competition, tax competition is the one between one g overnment and another, while consumers and manufacturers take part in the marke t competition. Through market competition, the efficiency of the economy can be i mproved, but meanwhile the gap between rich and poor areas may be enlarged bee ause of the competitive mechanism. Governments take part in tax competition can lead to contradictory results. On the one hand, tax competition can help improve th e efficiency of fiscal revenue; on the other hand, it may also deepen the gaps betwe en developing areas and developed areas.Based on reading large quantities of materials, the basic situations for less-developed areas to participate in horizontal tax competitions are definitely known about. By analyzing the characters, we know clearly which factors have caused them not to participate in horizontal tax competitions efficiently. According to the researches above, it is strongly suggested that our government should not only create a fair environment and make reasonable rules for tax competitions but also offer some more favorable polices for the less-developed areas, while considering about their characters, so as to balance the relationship between equity and efficiency, avoid the negative impacts as far as possible and make the best of their positive effects as well.The achievement of this dissertation is the new approach used in the research of tax competition. Although many researchers have done quite extensive research es in tax competition, and also the same situation in the study of developing areas, there are still quite few researches in combining tax competition with developing a reas. Besides, there are some shortcomings due to my capacity and some objective reasons in this dissertation.