Empirical Analysis Of Chinese Intergovernmental Tax Competition Based On Spatial Econometrics

Tax competition is regarded as a very important issue in western economic research area, as proper kinds of tax competition can improve the economic efficiency, optimize the economic system, and even enhance welfare of the whole society. Before the reform and opening, subject to the political policy and economic system, the fiscal system in China is state-monopolized revenue and expenditure, the local government is lack of power to develop economy as it is just an executive agency of central government. So during this period it seems that tax competition do not exist in China, and less research was carried on tax competition as a result of this reason. After 1980s, with the market economy system established, and the fiscal decentralization developed, the soil for tax competition rolled out. In consideration of self-benefit, the local government that has a relative fiscal autonomy began to participate in tax competition. As a result, empirical research on tax competition among Chinese local government becomes more and more crucial.In this paper the author will apply the spatial econometrical method to analyze panel data derived from Chinese 31 province from year of 1996 to year of 2014. The reason to process this research is to analyze the existence and reason of tax competition among Chinese local government from theoretical side and empirical side. The empirical results show that there exists tax competition among Chinese local government. The scale of tax competition based on geographical spatial weight matrix is not big, in other words, the tax interaction between neighboring jurisdictions is not obvious. On contrast, the scale of tax competition based on economic spatial weight matrix is quite strong, that is to say, the tax mimicking behavior among local governments that in the same level of tax burden is obvious.So, this paper gives some constructive suggestions for effective developing tax competition among local governments from problem-oriented and development-oriented. From problem-oriented, solve the main contradiction of tax competition and avoid vicious tax competition, firstly we have to keep on developing system of tax distribution, and strengthen the local tax system. Second we should perfect performance appraisal system among local government. From development-oriented, create a win-win situation, and build a perfect system for tax competition, we should strengthen the corporate work among local governments. Besides, we should enhance supervision and complete punitive measurement.