Research On The Impact Of The Construction Of Free Trade Zones On The Financial Capacity Of Local Governments

The fiscal capacity of local governments is an important part of government capacity building and plays a strong leading role in regional economic development.Since the implementation of China’s tax-sharing reform in 1994,all levels of government have shown a pattern of "fiscal power being transferred to the top and affairs being decentralized",which to a certain extent has affected the local government’s ability to regulate the economy and thus its fiscal capacity.The Free Trade Pilot Zone policy is a policy breakthrough actively sought by the Party Central Committee in the face of various challenges,and during the eight years of implementation from 2013 to 2020,a comprehensive development layout of "1+3+7+1+6+3" was quickly formed.The FTA construction has mainly implemented tax incentives and special customs supervision policies to promote trade and investment,which have brought obvious benefits to the pilot governments.Then,whether the construction of FTZs can effectively promote the financial capacity of local governments is worthy of in-depth study and exploration.Based on the above policy implementation background and the questions raised,this paper constructs a "quasi-natural" experiment using the construction of FTZs as an opportunity to examine the impact of the first five batches of FTZs established in2009-2019 on the fiscal capacity of local governments using a combination of normative research and empirical analysis.In the normative study part,this paper collates and lists the relevant theories and domestic and foreign literature reviews on the construction of FTAs and local government fiscal capacity,and the impact of FTA policies on local government fiscal capacity;in the empirical analysis part,this paper draws on panel data of 269prefecture-level and above cities in China from 2009 to 2020:(1)using propensity score matching--multi-period double difference model to test the impact of FTA construction on the fiscal capacity of local governments,the results show that FTA construction significantly improves the fiscal capacity of local governments in pilot areas,and the effect of FTA policy implementation in inland areas is significantly higher than that in coastal areas,and the policy effect of the third batch of FTAs established in 2017 with a higher percentage of inland cities is significantly higher than that of other batches.It is also verified that the construction of FTZs mainly promotes the improvement of local government fiscal capacity through the channels of driving regional economic growth,increasing foreign direct investment and industrial structure transformation and upgrading;(2)introducing an economic geography nested matrix and constructing a spatial double difference model to test the spatial spillover effect of the impact of FTZ construction on the fiscal capacity of local governments in the prefecture-level cities and surrounding cities,it is found that although the construction of FTZs improves the local government fiscal capacity of the pilot area,but to a certain extent,it squeezed the development space of the surrounding cities and suppressed the local government fiscal capacity of the surrounding cities;(3)the synthetic control test on the highly representative Hengqin Free Trade Zone in Zhuhai,Guangdong,can well fit the enhancement effect of the local government fiscal capacity of the establishment of the free trade zone,which again verifies the conclusions of this paper.Based on the above findings,this paper puts forward the following suggestions for the construction of FTZs in China:(1)reasonably select pilot FTZs,taking into account various factors such as economy and geography;(2)deepen the FTZ reform,make good use of the conduction channel of FTZ construction to enhance the fiscal capacity of local governments,and consolidate the effectiveness of the reform;(3)improve the supporting safeguard measures for FTZs to fully release the policy dividends.