Tax Competition,Fiscal Pressure And Economic Growth

The traditional theory of tax competition believes that in order to attract enterprises and residents to move to the local area,local governments will compete to reduce tax rates,resulting in the phenomenon of "race to the bottom".However,our country' s local tax burden has not shown a phenomenon of“race to the bottom" but has been on the rise.For this phenomenon,this paper considers from the perspective of budget constraint,and believes that since the tax-sharing reform in 1994,the fiscal pressures faced by local governments have continuously increased.It is the huge fiscal pressure that is caused by the mismatch between fiscal revenues and expenditure responsibilities,that redistributes the tax competition between governments.Further thinking,this paper believes that because the regions with large fiscal pressure are also underdeveloped areas,local governments are likely to be at a disadvantage in tax competition among regions because of their lower ability to bear the fiscal revenue reduction brought about by tax competition.This leads to a disadvantage in attracting enterprises and residents to move in,further reducing the economic growth rate in underdeveloped areas.Conversely,the smaller fiscal pressure in developed regions will allow local governments to have sufficient fiscal revenues to participate in tax competition,resulting in a lower tax rate level and higher growth rate of the local economy.Therefore,this paper assumes that differences in fiscal pressures among regions will lead to a further increase in the regional economic growth gap.The 19th CPC National Congress report pointed out:"The socialism with Chinese characteristics has entered a new era.The major social contradictions in our country have been transformed into a conflict between the people' s ever-growing needs for a better life and imbalanced and inadequate development." Therefore,at present,it is imperative for us to focus on the major social contradictions that have changed and work hard to solve the problem of“imbalanced and inadequate development”so as to further meet the people' s ever-growing needs for a better life.Therefore,this paper starts with the actual needs of realizing balanced development between regions in China.Through empirical research,the following two issues are analyzed.First,whether the fiscal pressure really affects the degree of local government tax competition;Second,whether the tax competition among local governments has affected the economic growth gap between regions through fiscal pressure.For the first question,that is,in order to determine the impact of fiscal pressure on tax competition,this paper takes the reform of the export tax rebate sharing mechanism in 2004 as a natural experiment and carries out empirical tests through a spatial econometric model.The data used in this paper is provincial panel data from year 1999 to 2014.For the second question,this paper constructs a structural equation model to illustrate the impact of tax competition and fiscal pressure on regional economic growth.This paper consists of six chapters.The first chapter is the introduction,which mainly introduces the background and significance of the study,the definition of related concepts,the structure of the paper,the research methods,and the innovation and deficiencies of this paper.The second chapter is the literature review,which combs and comments the domestic and foreign related research from the traditional tax competition theory,fiscal pressure and and economic growth.The third chapter is a descriptive analysis of local government tax competition,fiscal pressure and economic growth.It introduces the basic factual characteristics of local government tax competition,fiscal pressure and economic growth,laying the foundation for the subsequent empirical analysis.The fourth chapter is about the impact of fiscal pressure on tax competition,using the reform of the export tax rebate sharing mechanism in 2004 as a natural experiment,using provincial panel data from 1999 to 2014,and.using spatial econometric theory.The results show that after the reform of the export tax rebate sharing mechanism,the degree of tax competition is declining.This result verifies our view that the fiscal pressure will limit the government' s tax competition behavior.The fifth chapter is the impact of tax competition on economic growth.First,the taxation competition and economic growth are measured.Then the structural equation model is used to test the comprehensive impact of tax competition on economic growth.The results show that tax competition has a positive effect on economic growth.This means that because of the greater fiscal pressure of the underdeveloped regions,their tax competition behavior will be weakened,which is detrimental to the local economic growth and will further widen the gap between them and developed regions.The sixth chapter is the conclusion and the policy suggestion.Based on the theoretical and empirical analysis,it gives the corresponding policy recommendations based on the actual situation.The innovation of this paper is mainly embodied in the innovation of empirical technology:First,this paper uses the reform of the export tax rebate sharing mechanism in 2004 as a natural experiment to examine the impact of the fiscal pressures on the government ' s tax competition behavior.The influence of endogenous problems makes the conclusions from empirical tests more reliable,greatly reducing the impact of endogenous issues and making the conclusions from empirical tests more reliable.Second,because tax competition is a latent variable,it is difficult to find its proxy variable directly and accurately,and the structural equation model can better analyze the complex relationships involving latent variables.This paper studies the tax competition and regional economic growth by introducing a structural equation model,making the conclusion more reliable.