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Local Government Tax Effort in China: an Analysis of Provincial Tax Performance

Qian Wang, Ashley Chunli Shen () and Heng-Fu Zou ()
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Qian Wang: School of Public & Environmental Affairs (SPEA) Indiana University Bloomington

No 483, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper aims to enhance the understanding of provincial tax performance in China, paying special attention to the recent fiscal reforms in the 1980s and in 1994. Using provincial panel data for the period 1986-2004, our analysis consists of two steps. First, a combined fixed time effects and random provincial effects model is used to analyze the statistical relationship between the tax share in GDP and economic and demographic variables. Results indicate that the decentralized fiscal system over the period 1986¨C1993 has had a positive impact on the tax share in GDP, whereas the recentralized fiscal system in the period 1994-2004 has had a negative impact. Second, provincial tax effort indices are calculated to estimate potential room for additional taxation. The findings from the analysis have important policy implications on the redistribution of fiscal resources as well as on the effectiveness of the tax administration.

Keywords: Tax effort; Tax capacity; Fiscal reforms; Fiscal decentralization (search for similar items in EconPapers)
JEL-codes: C23 H20 H71 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2011
New Economics Papers: this item is included in nep-acc, nep-pbe, nep-pub, nep-tra and nep-ure
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Published in R¨¦gion et D¨¦veloppement n¡ã 29-2009

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