"Withdrawing The County To Set District" And Enterprise Tax Burden

The reform of “Withdrawing the County to set District” is an important spatial means of urbanization.It has changed the relationship between cities and counties,resulting in the change of management methods and the lack of management authority of county government,which may affect the development of county enterprises.This paper mainly focuses on the influence of “Withdrawing the County to set District” on the enterprise tax burden in the withdrawn counties.The reform of “Withdrawing the County to set District” has weakened policy capacity of county-level government,and has weakened political connections of enterprises in the jurisdictions as well as cut down promotion incentives of county-level officials.At the same time,the newly established urban area may be in a secondary position in municipal government's resource allocation in the short term.This may lead to reduced tax incentives and financial subsidies for enterprises in the jurisdictions,which then may affect the business performance of enterprises in the jurisdictions.However,“Withdrawing the County to set District” also reduces financial pressure of county-level government,and this impact may be transmitted to enterprises in the jurisdiction,reducing tax burden on these enterprises.From the empirical level,this paper uses panel data of county and city enterprises in the database of Chinese Industrial Enterprises and macroeconomic data of counties from 1999 to 2013,to study the impact of “Withdrawing the County to set District” on the tax burden and subsidies of enterprises.Furthermore,this paper discusses the possible ways of this influence from four aspects: political connections,promotion of officials,financial pressure,and urban development policy bias.Empirical research shows that:(1)“Withdrawing the County to set District” leads to economic expenditure incentives of county government weakened,and leads to reduction of political connections of county-level enterprises,which in turn reduces tax benefits received by enterprises in the jurisdiction.This conclusion is still valid in a series of robustness tests;(2)the actual tax burden of enterprises in the jurisdiction after “Withdrawing the County to set District” increased,and the increase mainly occurred in domestic-funded enterprises and heavy industrial companies,while foreign-funded enterprises and enterprises in other industries were not significantly affected by this;(3)due to reduction of tax preference,“Withdrawing the County to set District” has caused a series of negative impacts on company's operating performance,including strengthening financing constraints and reducing turnover efficiency of county-level enterprises.Although our research conclusions show that “Withdrawing the County to set District” has a negative impact on the operation of enterprises in the jurisdiction as a whole,the heterogeneity of the impact on enterprises of different sizes shows that before the county removed,the local government has policy favoritism in resource allocation.The policy favoritism is beneficial to important output value and tax enterprises,but restricts the development of SMEs and is not conducive to social equilibrium.“Withdrawing the County to set District” just breaks this policy unfairness,allowing enterprises in the area to enjoy a more equal policy,thus achieving fairness.