Sustainable Export Innovation Behavior of Firms Under Fiscal Incentive

The fiscal imbalance between the central and local governments under fiscal centralization may motivate local governments to pass tax burdens on firms. The causal identification of the tax system reform and the sustainable export innovation behavior of firms are of great significance. This study uses the income tax sharing policy of China to examine the impact of fiscal centralization on the sustainable export innovation behavior of firms. We find that this tax reform has significantly inhibited the increase of the export value-added rate of firms, and has an increasing trend with the share ratio between the Central Government and the local government. Moreover, this effect mainly comes from the crowding-out effect of imported intermediate goods on domestic intermediate goods. The tests show that the above conclusions are consistent with the general logic of local governments. When they face greater downward fiscal pressure, they will further pass the tax burden on local firms and force the firms to promote their export performance to expand the tax base. This short-sighted behavior of replacing “quality improvement” with “quantity increase” is an important factor that affects the sustainable export innovation behavior of firms and the climb in the global value chain.

Shock or Design: What Drives Fiscal De/Centralization? A Comparative Analysis of Twenty-Nine OECD Countries, 1995–2017

Over the past decades, decentralization has become the new paradigm in how states should organize power territorially. Carefully planned institutional re-designs are the most visible expression thereof. Yet the Great Recession of 2007–2009 has pushed governments into the opposite direction, i.e., towards centralization, to better weather the fiscal drought. Given these contradictory developments, this article compares the effects of twenty-three separate state reforms with the impact of the Great Recession on fiscal centralization in twenty-nine countries over more than two decades. In the main, our analyses attribute a larger effect to design, i.e., pro-active policy making through reforms, than reactive crisis management after a great shock. However, this difference is only apparent once we consider a state’s institutional structure, that is whether a political system is unitary or federal. Our findings thus highlight the need for a multidimensional approach to better understand the drivers of fiscal de/centralization.

Party System Linkage

This chapter examines two forms of integrated politics at the party system level, party system congruence and party system nationalization. Drawing on data from over 2,220 subnational elections in seven multi-level systems, it assesses three forms of party system congruence across the units of a multi-level system: similarity of the number of parties, electoral support, and similarity of the magnitude and direction of the electoral swing. Using the index of cumulative regional inequality (CRI), it measures the territorial concentration of party systems. The analysis shows that fiscal centralization and administrative interdependence predict integrated politics in the form of more congruent patterns of electoral support. There are limits to the institutional explanation. The electoral system and social cleavage structure are important explanations of variation in party system structures and territorial concentration.

The Politics of Scotland’s Public Finances

Politics and fiscal mechanics play interwoven roles in the public finances of devolved Scotland. Asymmetric devolution, in the context of divergent economic performance and relative population size and growth rates, has contributed to the longevity of the Barnett formula. Though criticized for either overfunding or underfunding Scotland, its resilience stems from its role as political convention in reducing overt conflict, and from maintaining the expenditure autonomy of the Scottish Parliament. The low level of self-financing from devolved taxes stimulated allegations that the Parliament lacked accountability and fiscal responsibility. Extended taxation powers advanced through the cautious Calman Commission to the rushed Smith Commission, and were driven by imperatives for a ‘counter-offer’ after the 2014 Independence Referendum. The early operation of the 2016 Scottish Fiscal Framework and the divergence of UK and Scottish income tax rates highlights the practical issues of devolved tax policy in the context of UK fiscal centralization. These developments have been driven by changes in Scottish political circumstances rather than by changes in fiscal fundamentals.

Fiscal Centralization: Theory and Evidence from the Great Depression

The Great Depression produced a profound and lasting influence on the structure of US government. This paper studies theoretically and empirically the increased centralization of revenues and expenditures by the states relative to local governments during this period. A model of property and sales taxation and tax delinquency is introduced. In the model, the income decline of the Depression causes a rise in property tax delinquency and leads to a shift toward sales taxation and fiscal centralization by the states. Empirical evidence based on cross-state variation in the severity of the Depression is consistent with the model's key predictions. (JEL E32, H25, H71, H72, H77, N12, N42)