County-Level Tax Sharing: A Statistical Basis for Measuring China’s Fiscal Decentralization

Mao Jie 1, Lv Bingyang 2 and Chen Peixia 3
1 School of International Trade and Economics, University of International Business and Economics, Beijing, China
2, 3 School of Finance, Renmin University of China, Beijing, China

Abstract: Controversies exist in literature regarding what indicators should be employed to measure China’s fiscal decentralization. This paper measures China’s fiscal decentralization by the sharing ratios of county-level VAT and corporate income tax (CIT). This approach avoids such problems as homogeneous denominator, and reflects the intricate interactions between governments at different levels. Based on extensive sources including the National Fiscal Statistical Information at Prefecture and County Levels and China County (City) Socio-Economic Statistical Yearbook over the 1998-2007 period, our estimation and analysis led to the following findings: (1) Since 2002, counties have retained a falling share of revenues; (2) a multidimensional horizontal comparison reveals a pattern in the county-level tax sharing ratio, i.e. counties in central and eastern regions retain a higher share of tax revenues compared with those in western and northwestern regions. These findings explain the fiscal difficulties at the grassroots level, and can be used to conduct a quantitative analysis of the determinants and economic effects of China’s fiscal decentralization.”

Keywords: fiscal decentralization, tax sharing, VAT, corporate income tax (CIT)

JEL Classification Codes: H71, H77, H11
DOI:1 0.19602/j .chinaeconomist.2019.3.0619602/

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