Abstract: Using game theory model, this paper discusses the government competition of multiple competition strategies theoretically. In order to analyze local government competition comprehensively, two different competitive strategies are introduced in our model: tax rate competition and public expenditure competition. Then using GS2SLS regression, we have made a case study based on the data of China’s 253 prefecture-level cities from 2006 to 2010. We find that government competition is diverse and flexible. For example, if neighbors decrease their tax rates, the government will try to restore competitiveness by lowering their tax rate and increasing public expenditure.
Keywords: Fiscal Competition, Macro Tax Burden, Public Expenditure, GS2SLS
source:Finance & Trade Economics ,No10,2013