Taxation without representation: local fiscal response to intergovernmental transfers in China

Chang Liu and Guangrong Ma ()
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Chang Liu: Peking University
Guangrong Ma: Renmin University of China

International Tax and Public Finance, 2016, vol. 23, issue 5, No 5, 854-874

Abstract: Abstract This paper studies the effects of intergovernmental transfers on local public spending in China, an authoritarian country where local politicians are not largely accountable to residents. The identification exploits a discontinuity from the central government’s designation of National Poor Counties. We find that additional transfers to county governments increase local public spending one-for-one. We further confirm that counties receiving additional transfers do not reduce the effective tax burden borne by firms. The results echo the empirical anomaly of the flypaper effect found in developed economies under democratic governments.

Keywords: Intergovernmental transfers; Fiscal expenditure; Effective tax rate (search for similar items in EconPapers)
JEL-codes: H21 H71 H77 R51 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10797-015-9383-y

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