Local Tax Burdens Research Articles

China's local government debt and firm tax burden

We establish a relationship between China's local government debt (LGD) and the tax burden on firms. Using datasets of LGD and listed firms from 2009 to 2021, we find that LGD significantly reduces firm tax burden. The tax reduction effect of LGD is particularly pronounced in regions with business-friendly environments and lower fiscal pressure, and is more evident among state-owned enterprises (SOEs) and less-profitable firms. We also find that new government bonds demonstrate a stronger effect on reducing firm tax burden than refinancing bonds do. The strategic growth of LGD can be meaningfully applied to stimulate firm and regional growth.

Local State Capacity and Uneven Taxation across Industrial Firms

AbstractIn this research we investigate the association between local state capacity (LSC) and effective tax burdens (ETBs) on industrial firms within counties between 1998 and 2013. The LSC measures a state's capacity for policy implementation and specifically its ability to acquire low‐cost agricultural land for nonagricultural (industrial or commercial) purposes. Based on China's government‐led development experience since the 1990s, we draw on two unique household survey datasets to capture LSC at county level. We find robust evidence that greater LSC was associated with much lower ETBs on large industrial firms. This taxation pattern implies local government's primary reliance on larger manufacturing firms, while the ETBs for small‐and‐medium enterprises are not as prominently addressed. This research highlights that LSC can affect both the amount of revenue a local government can generate and the methods it uses to collect these revenues.

Partisanship and Property Tax Redistribution: Evidence From Repealing Colorado's Gallagher Amendment

In November 2020, Colorado voters were asked to repeal the state's Gallagher Amendment, a constitutional redistributive policy in effect since 1983 that shifted the local property tax burden away from residential property on to nonresidential property. This study explores how partisanship predicts support for repealing Gallagher. Republican and Democrat platforms both entail sociotropic messages to support repeal, but following through on these political ideals carries a salient and nontrivial pocketbook cost to residential property owners. If voters aligned with one party or another are more likely to support repeal, it follows that these voters are more willing to put their money where their mouth is, so to speak. Using election precinct voting data, I find that Democrat-leaning voters were more likely to support repeal than otherwise similar Republican-leaning voters.

Does land conservation raise property taxes? Evidence from New England cities and towns

Protected lands provide high ecological and social value, yet a perception that land protection erodes local property tax bases and shifts tax burdens to other owners creates barriers for new protection. We investigate the impact of land protection on local property tax rates using panel data from more than 1400 towns and cities in New England between 1990 and 2015, including both ownership and easement-based protection. We find that on average, new protection results in a small increase in annual tax rates, with an expected change of $0.0231 per $1000 of value for a 1 percentage point increase in the percent of municipal area protected. This corresponds to an increase in a homeowner's annual property tax bill of $1.16 per $100,000 of value for 100 acres of new land protection. We do not find that taxes continue to increase over time or reduce municipal expenditures. However, for towns that are growing slowly, have lower household incomes, or use municipal land protection, we estimate greater tax bill increases of up to $10 for each $100,000 of value. These results provide evidence that land protection does not have a substantial impact on property taxes, but also highlight the importance of maintaining and expanding public compensation mechanisms, such as payments in lieu of taxes, where expected burdens from new protection may be greater.

Audit Reform, Local Government Intervention and Tax Burden of State-owned Enterprises

The tax burden of state-owned enterprises has been widely disputed under the intervention of the government, and the tax collection and management audit can effectively restrain the intervention of local governments. Therefore, this paper theoretically analyzes the impact of audit management system reform on the tax burden of state-owned enterprises and the mechanism of action. The research shows that the audit reform has a catalytic effect on reducing the tax burden of local state-owned enterprises, which is mainly reflected in the reduction of the circulation tax burden of local state-owned enterprises, and the reduction of the tax burden of state-owned enterprises by reducing the degree of local government intervention.

Impact of Regional Environmental Regulations on Taiwanese Investment in Mainland China

Based on the perspective of regional differences and decentralization, this article investigated the impact of environmental regulations on Taiwanese investment in mainland China from theoretical and empirical perspectives, and analyzed whether local governments are competing to lower environmental standards to attract Taiwanese investment so as to maintain their comparative advantages. This paper constructed a theoretical model through a two-stage game model. With the panel data of each province in Mainland China from 2006 to 2016, the theoretical propositions were empirically tested through the system GMM estimation method. The results show that the environmental regulation policies adopted by the local governments in the mainland have a significant inhibitory effect on the investment volume of Taiwan-funded enterprises, and the interaction between environmental regulations and local tax burden levels also has a negative effect on Taiwanese investment. Local governments have the motive to reduce environmental regulations to attract investment.

Local government debt pressure and enterprise tax burden in China

This study examines the relations between local government debt pressure and corporate tax burden in China, using the data of China’s A-share listed companies from 2009 to 2018, which turns out that there is a positive correlation between the two. Further examination revealed that the relationship between local government debt pressure and corporate tax burden is more pronounced in the sample of listed companies that belong to the state-owned holding companies, enterprises in eastern China, and the strong market allocation of economic resources. The research conclusion of this article supplements the theory and empirical study of the effect of the macro-financial system on the economic behavior of micro-enterprises, and also deepens the academic inquiry about the macro-environmental impact on the comprehensive tax burden of enterprises.

Market Potential and Fiscal Incentives Influence Firms’ Location Decisions: Evidence From U.S. Counties

How important are market potential and fiscal incentives for firms’ location decisions? We estimate the influence of subsidies and tax breaks on the decisions of firms to relocate or to remain in a certain U.S. county using a structural economic geography model developed in Meurers and Moenius (2018). In a panel data set from 1990 to 2016 for almost 3,000 U.S. counties, the authors find a strong and robust impact of economic geography on firms’ location decisions: The closer a county is to market demand and to the supply of inputs, the more firms locate there. As the model predicts, public investment attracts firms while the local tax burden disincentivizes economic activity, although to a lesser extent. Furthermore, in counties that are closer to economic centers, firms respond less to public investment and tax changes than firms in counties far away from centers. These data, therefore, confirm the predictions of the model regarding the potential effectiveness of regional development policies, in particular for investment tax credits, job creation, and training.

SALTy Citizens: Which State and Local Taxes Contribute to State-to-State Migration?

ABSTRACTState and local governments depend heavily on revenue generated from state and local taxes (SALTs). Migration between states occurs for many non-tax reasons, but prior research suggests tax-related factors may play an important role. Even so, the specific SALTs motivating state-to-state migration remain unclear given mixed and inconclusive results of prior studies. This study examines state and local tax variables individually and then jointly, and controls for important economic and noneconomic factors to determine which SALTs matter to residents when making relocation decisions. Using data collected from multiple sources for 2008 to 2015, results indicate overall state and local tax burden, individual income taxes, select sales taxes, and property taxes are all significantly and negatively associated with taxpayer migration. Further, select sales taxes and property taxes seem to be most significantly associated with migration. We also provide some intuition related to the economic impact associated with net migration.

Culture and Taxes

We propose a difference-in-differences strategy to identify the existence of interjurisdictional tax competition. Our strategy rests on differences between desired tax levels determined by culture-specific preferences and equilibrium tax levels determined by fiscal externalities and by preferences. While preferences differ systematically between French-speaking and German-speaking Swiss municipalities, local income tax burdens exhibit smooth spatial gradients. To qualify the empirical evidence, we develop a theoretical model of strategic tax setting by local governments that anticipate the effects of taxes on the per capita income and the median “hedonic” income, two inextricable consequences of the sorting of heterogeneous individuals.

Mineral taxes and the local public goods provision in mining communities

Fiscal regimes to the mining industry facilitate the revenue-raising task of resource-dependent economies as they reduce the local tax burden of their residents. Whether these fiscal arrangements translate into a higher allocation of public goods in these economies remains yet unclear. We analyze the effects that local mineral taxation has on the provision of public goods in mining communities using Chile as a case study. We examine the effects of a non-distortionary tax on local concessions using a panel of 345 local governments between 2009 and 2014. To identify the effect, we compare the benefits of the tax on mining localities using two counterfactual groups of non-mining localities. We control for time-invariant and time-variant unobservable factors through both a fixed-effects and an instrumental variable fixed-effects estimator. Results show that the mineral tax increases the provision of only two out of four indicators of public goods. Further evidence suggests that local mineral taxation crowds out other local taxes.

Redistribution and the New Fiscal Sociology: Race and the Progressivity of State and Local Taxes.

States redistribute wealth through two mechanisms: spending and taxation. Yet studies of the social determinants of redistribution typically focus exclusively on government spending. This article explores how one determinant of social spending-racial composition-influences preferences for, and the structure of, tax systems. First, analyses of state and local tax burden data indicate that an increasing proportion of Latinos within states is associated with more regressive tax systems. Second, evidence from a nationally representative survey experiment suggests that individual preferences for taxation may be influenced by changes in the racial composition of communities. Finally, analyses reveal that in-group solidarity is a key mechanism through which racial threat shapes preferences for taxation. In demonstrating a relationship between racial change, tax preferences, and tax structures, this article contributes to our under-standing of the determinants of redistribution as well as the broader project of the new fiscal sociology.

China’s outward FDI efficiency along the Belt and Road

Purpose The purpose of this paper is to estimate the China’s outward FDI efficiency and it determinants in 69 countries along the Belt and Road over the period of 2003-2013. Design/methodology/approach This paper defines the extent of the Belt and Road in terms of geographical boundaries, justifying the application of the stochastic frontier gravity model to the FDI analysis, and then constructing a frontier regression model to assess the China’s outward FDI efficiency and it determinants in countries along the Belt and Road. Findings Regarding the core gravity parameter estimates, China’s outward FDI was highly consistent with the gravity model. As far as policy parameters are concerned, China’s outward FDI was significantly restricted by some man-made barriers in host countries. According to the estimated FDI efficiency scores, China has huge outward FDI potential in countries along the Belt and Road. In general, China’s outward FDI efficiency demonstrated a consistent uptrend from the perspectives of both FDI flows and stocks over the period of 2003-2013. Although China’s outward FDI performance indicated a very uneven pattern across different countries and periods, there were no significant performance differences between the Road and Belt. Practical implications The Belt and Road initiative can be largely beneficial to China’s outward FDI, but the specific framework of cooperation should be designed on the basis of determinants of China’s outward FDI. The regional cooperation with the Road countries should mainly focus on the removal of business barriers and financial barriers. The regional cooperation with the Belt countries should mainly concern the improvement of local intellectual property protection, the reduction of local tax burden, and removal of business barriers and financial barriers. Originality/value To the authors’ best knowledge, no existing literature has specifically examined the efficiency of China’s outward FDI in the countries along the Belt and Road and its determinants.

Vertical Fiscal Gaps and Economic Performance: A Theoretical Review and an Empirical Meta-Analysis

How can policymakers reform US federalism for better economic performance? This paper focuses on vertical fiscal gaps: the proportion of subcentral government expenditure funded by central government grants and shared revenue over which subcentral governments lack autonomous control. On one hand, public finance theories show that central grants to subcentral governments can serve a useful purpose in aligning subcentral incentives to public welfare. On the other hand, political economy logic predicts that these grant programs will be a tempting target for rent-seeking politics, harming economic performance. To settle the theoretical conflict, it is necessary to investigate the evidence on the economic effects of vertical fiscal gaps in federal democracies. That evidence shows that, among federal democracies like the United States, vertical fiscal gaps lead to higher subcentral and overall government debt and spending. Moreover, in the United States, cost-sharing grants appear to promote a higher state and local tax burden, and transfers also undermine voter knowledge and public-sector efficiency. These findings are more consistent with political economy theories than with the traditional publicfinance view. Although intergovernmental transfers may sometimes be appropriate, the evidence suggests that in the United States the greater risk comes from their overuse. This paper derives policy implications for the United States.

Pyramidal structure, political intervention and firms' tax burden: Evidence from China's local SOEs

Using a sample of Chinese firms, we examine the influence of state-pyramids on corporate tax burden. We find results that state-pyramidal layers are significantly and negatively associated with effective tax rates, indicating that pyramids formed by the state protect local state-owned enterprises (SOEs) from political intervention. The results hold after controlling for potential endogeneity. We further find evidences suggesting that taxation is one of the channels through which state-controlled pyramids increase firm value. Our study contributes to both corporate finance and corporate tax literatures by documenting the role of pyramidal organizational structures in reducing local SOEs' tax burden.

U.S. State Government policies and entrepreneurship

Purpose – The purpose of this paper is to test the effects of government policies on entrepreneurial activity within the 50 US states. Design/methodology/approach – Using panel data and a fixed-effects model, the authors examine the determinants of the nominal establishment entry rate, the nominal establishment exit rate, and the net establishment entry rate. To measure government policy, the authors use the Economic Freedom of North America (EFNA) index published by the Fraser Institute. The authors use both the overall index and its components. The authors also use the state and local tax burden published by the Tax Foundation. Findings – The authors find that a smaller government is associated with a net increase in business establishments. A freer labor market is also associated with a net increase in business establishments. However, the relationship between the tax burden and entrepreneurship is more complex. Using a measurement of the tax burden from the Fraser Institute, the authors find that an increase in taxes is associated with a net decrease in businesses, but the measurement from the Tax Foundation suggests that an increase in taxes is associated with a net increase in businesses. Research limitations/implications – The results can help policy makers recognize the effects of expenditure and regulation on business formation. Practical implications – However, the results do not send a clear message on the effects of taxes on entrepreneurship. Originality/value – The contribution to the literature is the examination of the effect of the components economic freedom on net business entry in the USA, along with comparing the effects of two measurements of tax burden on net business entry.

The Impacts of Intergovernmental Transfers on Local Governments’ Fiscal Behavior in China: A Cross‐County Analysis (政府间转移支付对中国地方政府财政行为的影响：一项跨县分析)

Since the 1994 tax sharing reform, China's intergovernmental fiscal transfers have become huge in size and complicated in kind. More importantly, they have been assigned by the central government a variety of roles due to its changing policy priorities. This paper focuses on an episode, during the years 2000–2005, when substantial transfers were used by Beijing to advance the rural ‘tax and fee’ reforms. Using a cross county dataset from 2005 we estimate local governments’ responses to three major types of transfers, tax sharing or ‘tax returns’ (TRs), general purpose or fiscal capacity transfers (FCTs), and special‐purpose transfers (SPTs), either by mobilizing local tax effort (the stimulation effect) or by reducing local tax burden (the substitution effect). The results of statistical analysis reveal that TRs were highly stimulatory in all forms of local spending and revenue‐raising activities; FCTs were moderately substitutive in their effect on local budgetary spending and extra‐budgetary revenues, suggesting that the central policy of using transfers to reduce the fiscal burden imposed on peasants achieved some, though very limited, success. SPTs had a stimulation effect only on local budgetary spending, demonstrating the power of local matching requirements by the central government. Overall, central transfers tend to be stimulatory in China, an interesting result from an international comparative perspective.

A Note On Interstate Migration And Tax Burdens: New Evidence

This study extends the work of Cebula (1990) and examines interstate in-migration for 48 contiguous states based on the 1990 Census data. We find that the optimal value for the state and local tax burden is $1,943 per capita. Interstate in-migration rates are likely to increase (decrease) given a change in tax burdens, if the current tax level is below (above) the optimal tax level. We also find that more sunshine, employment growth, and income encourage in-migration and that higher heating degree days, percent of metropolitan area population, and violent crime reduce in-migration.

Migration and public policies: a further empirical analysis

This study of internal migration at the state level empirically investigates the Tiebout hypothesis (as extended by Tullock) of “voting with one’s feet.” In addition to its adoption of more current data (net migration from July, 2000 through July, 2008) than other related studies to date, the model differs from most previous comparable studies by including a separate cost of living variable and a measure of per capita state income tax burdens. We also test the hypothesis using two alternative specifications: one linear and the other semi-log. Finally, the analysis also provides both OLS and 2SLS estimates. The advantage of this multi-faceted approach is that it permits an assessment of how sensitive the results are to specification changes and to different estimation procedures. After controlling for economic factors and a quality of life/climate variable, migrants (consumer-voters) appear to prefer lower state income tax burdens, lower state plus local property tax burdens, and higher per pupil outlays on primary and secondary public education.

The impact of tax rates, political partisanship and economic variables on the distribution of state and local tax burdens

This study finds that the effective state and local tax rate for the top 1% of income households as a percentage of the effective state and local tax rate for the bottom 20% of income households in 2002 is significantly influenced by whether a state has a multi-rate income tax, right-to-work laws, the liberalism of a state's electorate, the average tax burden in a state and past tax policy. Democratic Party strength in state government, Republican or Democratic Party institutional control of state government, change in real per capita income, a Democratic Governor and the change in the share of income going to the top 1% of income households are not significant predictors. The empirical results are identical for the top 2–5% of income households to the bottom 20% of income households.