Chinese "Pressure-type" Fiscal Incentives And Local Fiscal Resource Growth

Local governments face complex and diverse pressures from various resources under Chinese pressure system during the period of economic and social transition.Extracting actively fiscal revenues is the main way for local governments to cope with pressures,which forms Chinese "pressure-type" fiscal incentives.With these incentives,local governments have two strategies:one is "grabbing hand" to extract resources from below directly,and the other is to actively promote the construction of financial resources,for example,to increase efforts to expand the tax base.Using the nation-wide abolition of agriculture tax in 2005 as the quasi-experiment of fiscal revenue pressures,the paper focuses on local governments' change of the behavior of increasing fiscal resource and response to the change of local fiscal pressures,which is a complement to the current literatures on "grabbing hand",and help to understand comprehensively the effect of Chinese pressure-type fiscal incentives on local governments' behaviors.The empirical results show that a county which suffered more public revenue loss due to the agriculture tax abolition among the same prefecture would have more industries' outputs,which implies that a county with more fiscal pressure has a stronger motive to develop economy.The paper find that the county under the more fiscal pressure is not the county which agriculture tax has a bigger share.The empirical results show that agricultural tax accounts for a high proportion of the county's tax revenue,the per capita GDP decreased significantly.The result show that the reason of the fiscal resource construction behavior is the change of the fiscal incentives but not the change of the structure of the tax.From the point of heterogeneity,the effect is more in the area of high financial self-sufficiency rate and the county which has a weaker industrial base.From the perspective of tools controlled by local governments,the paper finds that relaxing environmental regulation is the key tool of local governments to increase the industries' outputs.Finally,this paper puts forward some policy suggestions according to the conclusion,including the improvement of power distribution mechanism,improving budget system and transfer payment system,adjusting industrial structure,establishing service-oriented government.