The Inefficiencies of Legislative Centralization: Evidence from Provincial Tax Rate-Setting
China: An International Journal, 13(3), pp 49-67
30 Pages Posted: 10 Aug 2014 Last revised: 23 Dec 2015
Date Written: June 5, 2014
Legislative power in China is centralized to an unusual degree. This arrangement is both positively and normatively significant, but has received little attention in prior scholarship. We devise a novel method for analyzing the consequence of centralization by examining provincial rate setting for the vehicle and vessel tax (VVT). Because all provinces have assigned VVT revenue and VVT administration to sub-provincial governments, provincial rate-setting represents centralized, not decentralized, decision-making. Using spatio-econometric analyses, we find that provincial tax rate choices fail to reflect local economic and demographic conditions and display traces of tax mimicking. Both support the hypothesis that provincial officials lack information and incentives to make effective policy.
Keywords: federalism, centralization, tax competition, tax mimicking, local taxes, legislation
JEL Classification: D72, H20, H71, N45
Suggested Citation: Suggested Citation