Incomplete Tax Rights,Intergovernmental Competition and Tax Growth

Abstract

This paper explores the mechanism of China's tax growth within a framework of intergovernmental competition.Tax Competition takes place through endogenous tax collecting efficiency.Horizontal competition tends to lower the effective equilibrium tax rate,while vertical competition has the reverse effect.Since the 1993 tax reform,concentration of tax revenue to upper-level governments and regulation of local public finance imposed by the central government,have led to stronger vertical effects and relatively weaker horizontal effects.The paper offers us not only a new perspective to understand China's fiscal decentralization,but also an efficiency principle to design optimal tax sharing system.