Tax Centralization, Transfer Payment And Industrial Structure Bias

At this stage, China’s manufacturing industry and the development of real estate are in a strange situation:on the one hand, the investment of real estate has increased year by year, making the real estate market irrational prosperity; on another hand, the manufacturing development encountered a bottleneck, making many enterprise’s profit shrinking, facing the problem of survival. Many scholars have paid attention to this phenomenon and do some research on this. However, there is little literature from the perspective of the tax system to do research on the choice of the local government on the development of the industry.This paper attempts to study the behavior of local government in the choice of industry investment from two aspects:the centralization of tax revenue and the transfer payment. On one hand, the tax authority causes the local government tax revenue to the proportion of the total tax revenue decreasing. In order to pursue the maximization of local fiscal revenue, local governments will be more inclined to develop industry which can bring high tax revenue to the government under the pressure of the centralization of taxation. On the other hand, transfer payment, due to its imperfect system, most of them can be decided by government. Because different regions have different endowments, infrastructure spending for the two major industries has different degree. Based on this, this paper proposes four hypotheses. Hypothesis 1:tax centralization will lead local governments tend to develop the real estate industry. Hypothesis2:the higher the level of regional economic development, the easier it is to make the local government to develop the real estate development. Hypothesis3:the effect of transfer payment on industrial structure is different in different regions. Transfer payments make the local government to develop the real estate development in eastern region while make central and western regions to develop manufacturing industry. Hypothesis4:The higher the transfer payment, the lower ratio of the value of the real estate industry and the value added in the manufacturing industry.In order to verify the above four hypotheses, in this paper, we use panel data from 1999 to 2007 and Kraay Driscoll (1998) method to carry on the regression analysis. The final measurement results proved that real tax revenue will lead to local real estate growth greater than the growth of manufacturing and eastern region and central and western regions are affected by different extent. Transfer payments will make the overall manufacturing growth greater than the growth of the real estate industry, but different regions have different effects. Transfer payments will bring result that the eastern region of the real estate industry growth is greater than the real growth of the manufacturing industry, while the Midwest is the opposite. The policy implications of this paper is that reasonable regulation of the degree of centralization of tax revenue and the level of transfer payment can alleviate the current situation of local industrial structure distortion, and bring some power for the optimization of industrial structure in China.