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Strategic interactions in corporate tax between Chinese local governments

Author

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  • Chen, Yang

    (Division of Economics, Xi'an Jiaotong-Liverpool University)

  • Regis, Paulo José

    (Division of Economics, Xi'an Jiaotong-Liverpool University)

Abstract

Within the time framework of this study (1998-2012), the institutional settings of intergovernmental relations may constrain any strategic behavior of local governments since provincial tax rates are set by the central government. However, attracting business is an important measure of public officials?performance. Government officials have created alternative channels for tax competition. Our findings are consistent with this view that competition in corporate tax is relevant between provinces. As expected, the positive coefficient on the neighbor’s tax variable indicates provinces respond by changing around 0.73% of GDP to changes in neighboring jurisdictions of 1%.

Suggested Citation

  • Chen, Yang & Regis, Paulo José, 2014. "Strategic interactions in corporate tax between Chinese local governments," RIEI Working Papers 2014-01, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration, revised 27 Oct 2015.
    • Handle: RePEc:xjt:rieiwp:2014-01
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    More about this item

    Keywords

    Strategic interaction; average effective corporate tax; panel data; spatial regression model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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