VAT Sharing,Local Government Behavior And Capacity Utilization

As an indirect tax,VAT is easy to transfer.When the deduction chain is complete,the tax burden is ultimately borne by the consumer.In China,the local VAT revenue is determined according to the origin principle.In case of trans-regional transactions,the tax revenue ultimately belongs to the government of the place of production,and the tax burden is borne by the residents of the place of consumption.As a result,the tax revenue and the tax burden are inconsistent.As an important embodiment of the financial relationship between governments,the proportion of sharing between central and local governments has a direct impact on the behavior of local governments.Based on the VAT sharing reform in 2016,this paper empirically tested the impact of increasing the local VAT sharing ratio on capacity utilization by using the data of a-share manufacturing listed companies from 2010 to 2019 and constructing the panel data at the provincial industry level.First of all,this paper reviews and analyzes the literature from the economic consequences of VAT sharing,the factors of capacity utilization rate and the measurement method of capacity utilization rate,and summarizes the main research deficiencies of existing literature :(1)the research on the impact of VAT retention on capacity utilization rate.The real effect of the dynamic change of local VAT share ratio can not be well measured by using estimation and simulation experiment.(2)Although some literatures pay attention to the impact of tax sharing reform on micro enterprises in 2016,they ignore the distorting effect of the negative economic impact of VAT tax characteristics on government behavior,unlike the existing literature,this paper use VAT reform of tax in 2016 as a policy,and further examine the local government’s intervention behavior under this incentive to the enterprise production efficiency will be what impact,And how it affects capacity utilization.In the theoretical analysis part,this paper proposes that the reform of VAT sharing will intensify overcapacity,because on the one hand,the characteristics of VAT taxes and the principle of income division in production places will lead to the flow of tax revenue from consumption to production places,and the increase of local tax sharing ratio will aggravate this flow.On the other hand,VAT sharing reform will improve the autonomy and independence of local governments.In order to pursue economic growth and obtain more tax sources,local governments will adopt tax competition to affect capacity utilization through government intervention."Fuzzy property" system will give the government the land for energy at a lower price to buy land power,soft budget constraints can provide enterprises with the government financial resources,which is required by the development of local government for the purpose of economic growth and political performance appraisal can bring more economic benefits and tax preference of capital-intensive industries,Such industries have little flexibility in capacity adjustment,and it is difficult to exit the market when demand decreases,which will inevitably lead to a decline in capacity utilization rate.This conclusion has passed a series of robustness tests,such as the test of substitution of explained variables,the test of dynamic effects and the test of substitution of taxes.At the same time,further analysis shows that government financial subsidies and fixed asset investment are important transmission mechanisms affecting capacity utilization.In terms of heterogeneity analysis,when the degree of regional marketization is lower,the financial pressure is greater,and the degree of nationalization is higher,the increase of VAT sharing ratio causes the decrease of capacity utilization rate is more significant.In addition,this paper also finds that enterprises are more inclined to choose suppliers from the same province(city)after the local VAT sharing ratio is increased,which indirectly proves that the VAT production location principle will lead to local government intervention in enterprises’ production and operation,resulting in the decline of capacity utilization rate.The research conclusions of this paper not only enrich the research on the economic consequences of VAT sharing reform,but also have important implications for how to optimize the principle of VAT revenue division and promote the high-quality development of manufacturing industry.Based on the above research conclusions,this paper puts forward three policy suggestions: at the level of fiscal and tax system,adjust the VAT revenue principle to realize the transformation to the consumption principle;At the level of government management system,it is necessary to establish an appropriate long-term assessment mechanism for local governments,reduce intervention on enterprises,and better play the decisive role of market in resource allocation.At the enterprise level,we should regulate the market share of state-owned enterprises and reduce the opportunistic behavior of management sacrificing enterprise development benefits by improving the level of corporate governance inside enterprises.