An Empirical Study Of The Effect Of Local Tax Competition On Economic Growth

The local tax competition is an inevitable result of the fiscal decentralization system.Local tax competition adjusts factor flow and allocation of resources by changing the willingness and restricting the capacity of local government public expenditure.In those ways local tax competition has an effect on economic growth which may be positive or negative.With the continuous development of the fiscal system and the continuous expansion of the local financial autonomy in China,effect of local tax competition on economic growth become an objective and unavoidable financial problem that our government needs to face.The paper makes an empirical study on the effect of local tax competition on economic growth based on the Chinese provincial governments' data.We have reached some conclusions: First,there is a significant local tax competition behavior between provincial governments which promotes the economic growth of our country.There is no appearance of “race to the bottom” in China.Second,local tax competition has a threshold effect on economic growth.Local tax competition has a more obvious positive effect on developed areas than developing areas.Third,competitions on tax rate and agglomeration rent are both universal in Chinese local tax competition,which expand the economic development gap between different regions.We put forward constructive suggestions on the problem of local tax competition in China according to main conclusions of this paper.First,we should make a more scientific balance between central and local financial authority and powers.Second,we should order the local tax competition to avoid the destruction of market order and the loss of local tax revenue.Third,we should promote transfer payment system and equalization of basic public service to balance economic growth between different regions.Last,we should form a multilevel tax preferential system to guarantee the fairness of local tax competition.