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Taxation without representation: local fiscal response to intergovernmental transfers in China

Author

Listed:
  • Chang Liu

    (Peking University)

  • Guangrong Ma

    (Renmin University of China)

Abstract

This paper studies the effects of intergovernmental transfers on local public spending in China, an authoritarian country where local politicians are not largely accountable to residents. The identification exploits a discontinuity from the central government’s designation of National Poor Counties. We find that additional transfers to county governments increase local public spending one-for-one. We further confirm that counties receiving additional transfers do not reduce the effective tax burden borne by firms. The results echo the empirical anomaly of the flypaper effect found in developed economies under democratic governments.

Suggested Citation

  • Chang Liu & Guangrong Ma, 2016. "Taxation without representation: local fiscal response to intergovernmental transfers in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 854-874, October.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:5:d:10.1007_s10797-015-9383-y
    DOI: 10.1007/s10797-015-9383-y
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    Cited by:

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    3. Cassidy, Traviss, 2017. "How Forward-Looking Are Local Governments? Evidence from Indonesia," MPRA Paper 97776, University Library of Munich, Germany, revised 01 Jun 2019.
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    6. Liu, Yan & Wu, Guowei & Xiong, Chen, 2024. "Countercyclical central government transfers incentivize local government overborrowing: Theory and evidence," Economic Modelling, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Intergovernmental transfers; Fiscal expenditure; Effective tax rate;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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