Analysis On The Influence Of Local Government Competition On Manufacturing Agglomeration In China

With the financial system arrangement in many countries showing a trend of decentralization to varying degrees,scholars gradually attach importance to the theory of fiscal decentralization and local government competition,and try to analyze the importance of local government behavior to industrial agglomeration from this perspective.Under different fiscal decentralization systems,local governments have different ways of competition,so they will influence the industrial agglomeration in different ways.This paper focuses on the impact of local government competition on manufacturing agglomeration under fiscal decentralization in China,focusing on the following three aspects: First,by introducing local government competition into the "central-peripheral" model,it reveals the strategic interaction between local governments and its impact on the agglomeration pattern.Second,this paper discusses the incentive structure of local governments in China and analyzes the action mechanism of local government competition driven by incentives on manufacturing agglomeration.Thirdly,empirical data are used to verify the influence of local government competition on manufacturing agglomeration under fiscal decentralization in China,and the regional differences of such influence are discussed in the eastern,central and western regions.On the theoretical level,by introducing local government competition into the "central-peripheral" model,this paper describes how local governments in peripheral regions,as the initiator of competition,adopt competitive tax strategies to influence the "agglomeration rent" and thus win the centralization position.In this case,local governments in the central region have different coping strategies,which determine whether the current agglomeration pattern can be maintained.To illustrate the above process under the fiscal decentralization system is set up in China,this article from the incentive structure of China’s local government again,put forward the mechanism of local government competition affect manufacturing agglomeration,finally found that China’s fiscal decentralization system from two aspects of economic and political incentives to drive local government competition will affect manufacturing agglomeration.On the empirical level,based on the provincial panel data from 1999 to 2016,this paper uses the spatial Durbin’s model with fixed effects to test the formation process of local government competition and its influence mechanism on the agglomeration pattern of manufacturing industry under the fiscal decentralization system in China.It is found that the lack of freedom of local government in fiscal expenditure weakens the role of economic incentives in promoting the concentration of manufacturing industry.Although tax incentives implemented by local governments under political incentives can improve local manufacturing agglomeration to a certain extent,it is easy to fall into the dilemma of "race to the bottom",and manufacturing agglomeration based on "policy rent" is difficult to sustain.In addition,in the eastern,central and western regions,the influence of local government competition on regional manufacturing agglomeration has spatial heterogeneity,which is mainly reflected in the difference of key influencing factors.Both the theoretical analysis and empirical analysis of this paper show that the implementation of preferential tax policies by local governments can promote the local manufacturing industry agglomeration to a certain extent,and it is also an effective means to change the current agglomeration pattern.However,when local governments generally adopt preferential tax policies,the effect of the policies may not be obvious,and the situation of "competition for the bottom" among local governments may also be easily caused.Therefore,relevant rules and regulations are needed to restrain the investment attraction behavior of local governments.On the other hand,the current situation also reflects the imbalance between political and economic incentives.This requires further enhancement of economic incentives,such as giving local governments more autonomy in fiscal revenue and expenditure,and appropriate weakening of political incentives,such as including indicators of social governance in the assessment system of local governments.In addition,local governments in different regions should start with different emphases in the process of developing local manufacturing industry.