How The Vertical Fiscal Imbalance Influences The Government Investment

Decentralization fiscal system is the mainstream choice in many countries at present.Scholars at home and abroad have done a lot of research on the issue of tax distribution and national fiscal system,with different views.In recent years,on the basis of the research on fiscal decentralization,the academic circle has put forward the problem of vertical fiscal imbalance.The vertical fiscal imbalance refers to the mismatch between the revenue rights and business expenditures on the central and local governments under the fiscal decentralization system.As for China's tax distribution reform,the academic community has a unified understanding that after China implemented the tax distribution reform in 1994,a large number of financial powers were centralized to the central government,while much affairs were delegated to local governments,resulting in the current situation that most local governments in China could not make ends meet.Therefore,the current government at all levels are in a state of financial system vertical imbalance.The vertical fiscal imbalance causes different influence to the government behavior on many aspects.Due to the vertical fiscal imbalance,local governments may be excessive debt,much dependent to the transferring payments and changeable on the spending tends.Because of the influence of the vertical fiscal imbalance to the government behavior,it may further extend to the impact on the government investment behavior,and this paper mainly studies the impact of the vertical fiscal imbalance to the government investment behavior.With the define and the concept of the vertical fiscal imbalance and the government investment,as well as the internal logic theory how the vertical fiscal imbalance influence the government investment,three main hypotheses are proposed: first,the vertical fiscal imbalance will inhibit the government's investment;Second,the vertical fiscal imbalance causes different impacts on different regions,and its impact on the eastern region is greater than that of the central and western regions.Third,the vertical fiscal imbalance not only affects the current government investment,but also restrains the subsequent government investment.In order to verify the above hypothesis,this paper first analyzes the basic situation of the vertical imbalance of China's current financial system,and confirms that the empirical facts are in line with the basic speculation.Further,we refer to relevant research,establish an econometric model,and use the provincial panel data from 2004 to 2014 to further analyze the impact of vertical fiscal imbalance to the government investment.In order to verify the hypothesis one and hypothesis two,this article selects the government investment as explained variable and the vertical fiscal imbalance as explanatory variables,adding a macro tax rate,urbanization rate,average annual population and virtual variables as control variables,then adopt the method of dynamic panel regression,and confirmed the conclusion of the vertical fiscal imbalance will suppress the government investment.at the same time this paper uses general panel regression analysis method,verified the unbalanced regional difference of the impact of the vertical fiscal imbalance to the government investment.For hypothesis 3,this article adopts the analysis method of panel VAR,through the unit root test,determination of the optimal lag,granger causality test,regression analysis,impulse response and variance decomposition methods,analyzes the dynamic relationship between the vertical fiscal imbalance and the government investment,to verify the continuous impact of the vertical fiscal imbalance to the government investment.On the basis of the above analysis,this paper puts forward relevant policy suggestions:(1)pay attention to the vertical fiscal imbalance and optimize the government revenue structure;(2)develop local economy and promote the local government revenue growth with the economic growth;(3)reasonably divide the responsibilities of the government and optimize the financial system;(4)improve the financial transferring payment system and promote local economic development;(5)establish a medium-term budget system and make reasonable plans for the government investment.