Research On The Impact Of Tax Reduction Policies On The Sustainability Of Local Finance

In all previous central and provincial financial system reforms,the sustainability of local finance has always been a concern.The sustainability of local finance is not only closely related to the economic management methods and capabilities of local governments,but also to the implementation and effectiveness of the "dual circulation" national development strategy.At present,the growth rate of local fiscal revenue in China continues to slow down,but the expenditure growth rate remains at a rigid level.Therefore,the sustainability of local finance is increasingly receiving attention from all sectors of society.The 2022 Central Economic Work Conference pointed out that active fiscal policies need to be strengthened to improve efficiency and provide significant support for high-quality development.The tax reduction policy is one of the important contents of proactive fiscal policies,and is an important means to boost the economy and optimize industrial structure.The role of tax reduction policies can not only drive investment but also promote consumption and economic growth.However,while tax reduction policies play a role as economic "boosters",they also pose risks to the sustainability of local finances.Therefore,in order to better leverage the role of tax reduction policies,effective measures must be taken to address the sustainability issues of local finance.How to better promote local fiscal sustainability through the implementation of tax reduction policies is of great significance to strengthen local governments to resist fiscal risks and ensure sound local fiscal operations.Based on this,this paper firstly analyzes the impact of tax reduction policies on local fiscal sustainability based on Keynesian and supply school theories of tax reduction,public goods theory and intertemporal budget constraint theory,then compares the tax reduction policies implemented in China since 2008 and summarizes the characteristics and economic effects of tax reduction policies at each stage,then introduces the concept of "effective fiscal space" to measure the local fiscal sustainability of each province in China,and then further analyzes the current situation of local fiscal sustainability in the context of tax reduction in China based on the measurement results.Finally,based on the understanding of the current situation of local fiscal sustainability,an empirical analysis is conducted to investigate whether tax reduction policies have a suppressive effect on local fiscal sustainability and whether there is regional heterogeneity in the impact of tax reduction policies on local fiscal sustainability through benchmark regression analysis,robustness test and heterogeneity analysis.The conclusion drawn from the current situation analysis is that there is a deteriorating trend in the sustainability of local finance at the provincial level in China,and the current situation of sustainable local finance is not optimistic,and most provinces in the central and western regions have weaker local fiscal sustainability than the eastern regions.The empirical findings from the systematic GMM estimation are that tax cuts inhibit local fiscal sustainability and the negative impact of tax cuts on local fiscal sustainability is significantly heterogeneous across eastern,central and western regions,with tax cuts implemented in the central and western regions having a greater negative impact on local fiscal sustainability than in the east.Combining the results of the empirical analysis and the current situation analysis,this paper puts forward the following suggestions in order to make some contributions to how provincial governments can maintain local fiscal sustainability: first,strict fiscal expenditure management and improve fiscal expenditure efficiency;second,improve the fiscal risk prevention system and strengthen government debt management;third,cultivate local main taxes;and fourth,optimize tax reduction policies.