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

See all articles by Wei Cui

Wei Cui

University of British Columbia (UBC), Faculty of Law

Zhiyuan (Sebastian) Wang

Texas A&M University-Commerce

Date Written: June 5, 2014

Abstract

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

Cui, Wei and Wang, Zhiyuan, The Inefficiencies of Legislative Centralization: Evidence from Provincial Tax Rate-Setting (June 5, 2014). China: An International Journal, 13(3), pp 49-67. Available at SSRN: https://ssrn.com/abstract=2476529

Wei Cui (Contact Author)

University of British Columbia (UBC), Faculty of Law ( email )

1822 East Mall
Vancouver, British Columbia V6T1Z1
Canada
6048274765 (Phone)

Zhiyuan Wang

Texas A&M University-Commerce ( email )

Department of Political Science
P.O. Box 3011
Commerce, TX 75429
United States

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