A Study Of The Effect Of Local Tax Competition On Public Goods Supply In China

The perfection of market system in China has made cross-region flow of domestic resources easier since the reform and opening up.The provinces have adopted various policies to attract capital.The tax-sharing reform in 1994 broke the original pattern between central and local government,giving the local governments more financial autonomy and the incentive to continuously improve their economic strength to obtain more tax revenue.Local governments have more independent local interests and put more emphasis on promoting local economic development.Coupled with the gradual improvement of the market economic system and the performance appraisal mechanism of the "GDP competition",the financial competition among local governments in China came into being.The financial impact of local governments on production and life mainly includes two routes: taxation and provision of public goods.Therefore,local fiscal competition can be divided into two categories,one is tax competition to reduce production costs,and the other is expenditure competition through provide public goods to improve local welfare.The tax-sharing system brings the decentralization of finances while allowing local governments to assume more responsibility for the provision of public goods.As two important ways of local government competition,tax competition and public goods supply have always been closely related,particularly in the context of fiscal decentralization.Whether the tax competition carried out by local governments to seize high-quality resources effectively promote the development of local economy,and whether the development fruits are used to improve the level of local public welfare? The effect of local tax competition on the provision of public goods has always been an important issue in the academic debate.This paper consists of five parts.The first part introduces the significance of the research,the background,the existing domestic and foreign research results and then defining the research content of this paper respectively.The second part expounds the influence of local tax competition on the provision of public goods from theoretical aspect.The third part sorts out and analyzes the situation of local tax competition and the provision of local public goods in China.The fourth part is empirical analysis.Based on the inter-provincial panel data from 2007 to 2017,the impact of the tax competition on six public expenditure levels is analyzed by constructing a spatial autocorrelation model and a spatial error model with random effects.The related policy suggestions are put forward in the last part,combined with the conclusions of this paper.