Tax Reduction, Fiscal Pressure And Social Welfare At The County Level

With the implementation of cutting taxes and fees policies in recent years,the fiscal revenue of local governments in China has declined,but at the same time the expenditure responsibility has not decreased,and the funding gap between revenue and expenditure has led to a sharp increase in the financial pressure on local governments.At the same time,the performance appraisal and promotion mechanism of local officials in China provides a strong incentive for them to develop the local economy.Under the condition of limited revenue grabbing capacity and grabbing space,local governments may choose to compress the expenditure on basic public services to cope with the increasing financial pressure,so will the level of local social welfare be affected?This paper uses the reform of abolishment of agricultural tax in 2005 as a quasi-natural experiment and investigates the impact of tax-cut shocks on the fiscal pressure on county governments and local social welfare using a DID model.Three main conclusions emerge from this study.(1)The abolition of the agricultural tax will increase the fiscal pressure on county governments and at the same time have a negative impact on local social welfare,with counties that are hit harder by the policy shock suffering a greater impact on local social welfare.Meanwhile,the reliability of these findings is further demonstrated by replacing the identification strategy for tax-cut shocks with a robustness test using the reform for sharing income tax revenue.(2)Other things being equal,the lower the level of economic development,the more severe the loss to social welfare caused by the abolition of agricultural tax.(3)All else being equal,the more severe the loss in social welfare caused by the abolition of agricultural tax in food-producing regions compared to non-food-producing regions.There are three main innovations in this paper.(1)Data innovation: Unlike the existing literature on "fiscal pressure" and "public services",which uses provincial or municipal-level data,this paper uses county-level data to conduct research,and the data sample better reflects the behavioural logic of the county-level government,which is the main decider of local fiscal expenditure decisions.(2)Innovative methodology: this paper uses the abolition of agricultural tax as a quasi-natural experiment,constructs a DID model and re-measures tax reduction shocks using income tax sharing reform in a robustness test that robustly identifies the impact of tax-cut shocks on local fiscal pressure and social welfare.(3)Innovative research perspective.Unlike the existing literature,this paper focuses on social welfare,which has a direct impact on people’s lives,and adopts the number of adoptive units of social welfare as the explanatory variable,and replaces the explanatory variables with several indicators in the robustness test to further clarify the changes in local social welfare and people’s lives under the tax cut shock.The implementation of a series of cutting taxes and fees policies in recent years has made it more and more urgent for local governments to address the problem of financial pressure.The protection and improvement of people’s livelihoods,enhancing the accessibility of public services and promoting equal access to basic public services are important guarantees and powerful means to create a harmonious society,promote the sharing of the fruits of development for all people and promote common prosperity.Therefore,taking social welfare as the entry point,this paper explores the impact of fiscal pressure on local social welfare,enriches the literature on the impact of fiscal pressure on local government public services and provide empirical support for the alleviation of fiscal pressure on local governments and the basic protection of livelihood expenditures and social welfare in the context of cutting taxes and fees policies,as well as policy recommendations for the reform and improvement of the fiscal and taxation system.