Central Government Credibility and Local Tax Efforts: a Game Theoretic Model
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As discussed in Chapter 1, China introduced a decentralized revenue-sharing system (that is, the fiscal contract system) in 1980. Despite many changes, the fiscal contract system maintained two features between 1980 and 1993: the provincial and lower level governments collected most of the revenues, except for a few taxes such as custom duties; each province remitted a certain amount (or percentage) of its locally collected revenue to the center, or received a certain amount of central governmental transfer, according to a contract signed with the center.
KeywordsEconomic Management Revenue Collection Commitment Regime Optimal Revenue Intergovernmental Relation
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