Study In Existence And Reason Of Tax Competition Among Chinese Provincial Governments

In the developed countries’economic research, tax competition has been a very important issue. Reasonable tax competition can promote economic efficiency and find an ideal economic institution that more suitable for economic development, and improve the welfare of the whole society. Before the reform and opening up policy in China, due to restrictions on political and economic institutions, tax competition in the traditional sense does not exist. Therefore there are relatively few studies in China. After the1980s, with the introduction of market economy and fiscal decentralization, the prerequisites for the existence of tax competition have already existed in our country. Out of self-interest considerations, the provincial governments have gradually expanded tax competition. Therefore, the research in tax competition, especially in empirical research began to highlight the significance of tax competition. With respect to the important role of tax competition on social welfare, the research of tax competition in reality, especially the empirical study is relatively less.This thesis has mainly used the advanced empirical analysis tool of spatial econometrics two-ways fixed effects model spatial Durbin Model. In use of panel data of30provinces in China, from1998-2010, the thesis aimed at testing the existence of tax competition among the provincial governments, and attempt to analyze tax competition from the perspective of reason of tax competition. The empirical result shows that there is a significant negative correlation between the setting behavior of capital variables and independent variables; In addition to extra-budgetary revenue, the lagged coefficients are significantly positive, indicating that there is a positive correlation among provincial governments’tax setting behavior. Above all, the results of empirical analysis validated the internal and external reason of tax competition.The first part is an introduction focuses on the background and significance of the tax competition, and defined the concept of tax competition. The second part is the general theory analysis of tax competition, and aimed at refining the mechanism. The third part mainly analyzed the actual situation of tax competition among Chinese provinces. In the fourth part, using a series of spatial econometrics techniques with panel data of30Chinese provinces from1998-2010, designed to prove the existence of tax competition among Chinese government and elaborated on the issue of tax competition from perspective of reasons. The last part is policy recommendations from the analysis of the fourth part, to give systematical policy recommendations to guide rational tax competition.