Abstract: This paper first computes and compares the degrees of nontax competition of provinces in the eastern, middle and western regions of China. And then, on the basis of the results above, we use spatial lagged panel model to analyze the patterns of strategic interaction of nontax competition degree in different regions, as well as the effect of fiscal decentralization on nontax competition. The results indicate that, nontax competition exists in China with different degrees at present, where provinces in the eastern region compete more fiercely than those in the middle and western regions. The strategic interaction pattern of provinces in the eastern region, which is “race to the bottom”, is different from that in the middle and western regions, which is alternative strategy. Besides, the popular phenomenon that local governments use nontax revenue to achieve the goal of revenue increasing constrains the nontax competition. Moreover, the effect of fiscal decentralization on nontax competition is not monotonous, instead, there turns out to be a U-shaped relationship between them.
Keywords: Nontax Competition, Horizontal Comparison, Fiscal Decentralization
source:Finance & Trade Economics ,No4,2014