The 17th “Theory and Policy” at RUC NADS

Investment Promotion, Tax Preference and Tax Assessment: Chinese Tax Competition

Speaker：YIN Zhendong, Associate Professor of School of Economics, Central University of Finance and Economics

Moderator：LIU Ruiming, Professor of National Academy of Development and Strategy, Renmin University of China

Time：Nov.16, 2018（Friday）14:00-15:30

Venue：Meeting Room 815, Chongde Building West Wing (Keyan Building Block A）

Abstract

In order to attract investment, the local governments launch fierce tax competition and provides various tax credits, resulting in an invalid low tax rate, which is explained by the classic framework of tax competition. This article combines the classic tax competition theory with tax assessment mechanism with Chinese characteristics to study the synergetic effect of tax assessment on tax competition. We find that within the framework of classic tax competition, tax assessment can weaken tax competition and increase the equilibrium tax rate. However, in dynamic tax competition, only when the tax rate of the first phase is low, tax assessment can raise the tax rate, otherwise it would further reduce the tax rate and intensify the tax competition. Considering the structure of fiscal expenditure, although tax assessment can raise the tax rate, it would be sometimes so strong that it leads to distortions in the expenditure of local governments, since they would “value construction above people’s livelihood”. At present, the central government weakens GDP assessment and pays more attention to people's livelihood. According to the model, it should gradually weaken tax assessment. The findings of the article have important practical significance for guiding local governments to compete reasonably and improve the state's financial governance ability.

Speaker’s Introduction

Yin Zhendong is Associate Professor of School of Economics, Central University of Finance and Economics. His main research areas are organizational economics, public economics and new political economics. He has published many papers in authoritative journals such as Economic Research Journal. His research findings have won the Outstanding Achievement Award of Social Science in Shandong Province and Jiangxi Province and the Outstanding Paper Award of China Finance Forum.