Fiscal Decentralization, Multi-level Government Competition and Local Non-tax Revenue: Dynamic Spatial Panel Model Estimation based on Provincial Data from 2000-2010

Abstract

With the application of dynamic spatial panel model under China’s
decentralization framework, this paper elaborates the impacts of the “horizontal
strategic interaction” among local governments, as well as the “vertical common
reaction” between central and local governments, on the non-tax burden of various
regions. The results indicate that there exists non-tax horizontal strategic imitation
among local governments, with the degree from land remise revenue, extra-budgetary
funds to budgetary non-tax revenue in descending order, in line with the structural
trend of non-tax revenue. In terms of vertical common reaction, local governments
present policy emulation towards central government in extra-budgetary funds, with
an increasing degree of policy violation in budgetary non-tax revenue, while the
reaction transforms from policy violation to emulation in land remise revenue. Fiscal
decentralization produces negative influence on non-tax revenue, varying among
revenue categories, with substantial impact on land remise revenue, followed by extrabudgetary funds, and negligible effect on budgetary non-tax revenue. This paper
proposes related analysis based on current non-tax system, as well as corresponding
policy implications.