LIU Yi, LIU Weigang：Tax Share, Tax Effort and Local Expenditure: Evidence from the County-Level Data

Abstract：We construct two kinds of tax share between the central and local governments.One is share of shared tax, and the other is actual share of total tax generated in the local.Based on county-level panel data, we analyze the effect of tax share on local public expenditure behavior and the mechanism.The results refer that the two kinds of tax share play opposite roles on total public expenditure, in which share of shared tax has incentive effect on expenditure size, while the actual share owns inhibitory effects.In detail, 1% increase of share of shared tax would promote 0.08% of expenditure size, and 1% increase of actual share would reduce 0.112%.What's more, they also own different effects on productive and nonproductive expenditure, as well as on the specific expenditure items.Tax effort is one channel that the two kinds of tax share influence expenditure.Together with tax share's direct income effect, the indirect effect generated through tax effort impacts the local revenue that determines the expenditure size.Besides, the local would adjust its expenditure decisions if local revenue has been changed.

Key words： Tax Share    Local Tax Effort    Government Size    Expenditure Bias    Expenditure Structure

source:Finance & Trade Economics ,No.6,2015