Research On The Competition Of Attracting Investment Among Local Governments In China And Its Governance Mechanism

After the reforming and opening up, China has made great achievements in economy, and transforms successfully from a centrally planned economics to the emerging market economics at more than 9% economic growth rate annually. Over the past 30 years, the local governments not only provide public goods and services for the community, support for the development local enterprises, attract foreign investment, and have always played an important role in the corporate investment and management in the early stages of reform.However, since the tax-sharing reforms, the competition of attracting investment has became more and more serious between provinces in China, and even between districts and counties, which promotes the competition of attracting investment towards the vicious direction. At present, lots of the local governments have been fighting for land,setting the subsidies and lowering the threshold in the competition of attracting investment, in which the investors become directors and local governments become players, so the competition of attracting investment is harmful to the development of social economics in the future, and has laid a major trouble.Through reviewing the development and evolution of the competition of attracting investment among local governments, this paper studies the origin,the harm,the main policy instruments and their impact on business investment of the competition of attracting investment among local governments. After that, through building the game models of tax competition and subsidized competition, it also explores the effect of capital flows from the competition of tax preference and the effect of investment decisions from the competition of subsidies policy, and the effect of allocative efficiency of resources. Finally, it also designs the institutional arrangements to restrict the vicious competition of attracting investment among local governments in China from the perspective of the officials promotion system,the tax allocation system and the government administrative system, etc.The main research contents of this paper are as follows:â‘ The status research of the competition of attracting investment among local governments in ChinaThis part is composed of Chapter 3. This part mainly studies the origin,the harm,the main policy instruments and their impact on business investment of the competition of attracting investment among local governments in China, and then, it also analyzes the impact of enterprise investment coming from the tax reduction,fiscal rebate,police subsidies and the lowering threshold, etc.â‘¡The game analysis of the competition of attracting investment among local governments in ChinaThis part is composed of Chapter 4. This part mainly researches for the multi-participant game model of the competition of attracting investment and the allocative efficiency of investment among enterprises and local governments in China. By the way, it explores the effect of capital flows from the competition of tax preference and the tax competition game model including multi-participant under incomplete information basing on the common agency theory. Meanwhile, it constructs the game model of subsidy policies under complete information and incomplete information and the effect of investment decisions from the competition of subsidies policy.â‘¢The governance mechanism design for restricting the vicious competition of attracting Investment among local governments in ChinaThis part is composed of Chapter 5. This part mainly researches for the mechanism design of the officials promotion system,the tax allocation system(especially the corporate income tax and value-added tax) and the vertical management of the government administrative system in the key fields(such as environmental protection,national land resources,labor security, and so on), in order to reduce the incentives of the competition of attracting Investment and restrict the vicious competition of attracting Investment among local governments in China.The innovations of this paper are as follow:â‘ Basing on the common agency theory, this paper studies the tax competition game model including multi-participant under incomplete information. The tax competition game model which has successfully brought the competition effect and the export effect into a unified analytical framework, and has also explored the effect of capital flows from the competition of tax preference.â‘¡This paper studies the subsidy competition game model which includes the cooperation and competition strategy of attracting investment among local governments under complete information and incomplete information, and has also explored the effect of investment decisions from the competition of subsidies policy.â‘¢With the theoretical analysis of the competition of attracting investment, basing on mechanism design theory and principal agent theory, this paper has designed the Incentive mechanism for restricting the vicious competition of attracting investment among local governments in China from the perspective of the officials promotion system,the tax allocation system and the government administrative system, so as to realize the effective governance of competition of attracting investment in China.