The Politics of Central Tax Collection in China since 1994: local collusion and political control

Abstract

The central leaders in China adopted a tax assignment system and centralized taxation in 1994 with the goal of increasing central tax revenues. By setting up the National Tax Bureau, the central leaders intended to leave central tax collection undisturbed by local influences. However, informal practices at the local level revealed that the local governments colluded with the central tax bureaucrats stationed in their regions at the expense of central interests. The need to develop local economies, an important task assigned to local governments, is one important reason behind local interference in central tax collection. This study finds that the central government coped with this problem by changing the incentives of the provincial party secretaries through linking central tax collection in a jurisdiction with their chance of promotion.