Regional Tax Transfer and Horizontal Tax Assignment in China

This study investigates the interregional tax mobility in China. Taxes are transferred among provinces mainly through five sources, such as the consolidation of corporate income tax, the regional flow of value-added tax, the pricing of natural resources by central government, the taxes on cross border business, and the harmful tax competition among local governments. We evaluate the scale of tax transfers at province level and calculate the mismatch between regions’ tax revenue and tax base. The finding is that tax transfer may be one of the most reasons of local governments’ horizontal fiscal imbalance in China.

Keywords: Tax Transfer, Tax Assignment, Tax Law, Local Government, China