Download Research on Taxation and Financial Policies of Liaoning Regional Economic Development

Research on Taxation and Financial Policies of Liaoning Regional
Economic Development
LUO Dancheng1, Zhou Juan2
1. School of Economics, Shenyang University of Technology, China, 110178,
1. 2. School of Economic and Management, Shenyang Agriculture University, China, 110161
[email protected]
Abstract: Based on the relative theories of regional economic development, taxation and financial
policies, establishing the model of economic development and fiscal revenue, this article carried on the
statistical analysis on relations between Liaoning finance and economic development. Then, the article
summed up foreign successful experience of using regional taxation and financial policies to develop
regional economy, and promoted policy proposals coordinating Liaoning economic development. Above
all, we should further improve the transfer payments system, fiscal equity, financial subsidies and other
forms of financial security. For tax policy, we should strengthen tax laws and regulations; build
management system, and implement the tax system reform and appropriate preferential taxation policies.
For monetary policy, it needs reform to resolve the historical burden as soon as possible, improving
operating mechanism of county's commercial banks, promoting capital market development,
establishing and improving Liaoning's credit system and the system of financial institutions and
organizations.
Keywords: Liaoning; Regional economy; Finance and taxation policy; financial policy
1 Introduction
Since 2006, Liaoning provincial finance department has carried out earnestly finance and taxation
policy, and promoted the old Industrial base economic development positively. So far, provincial finance
department has already invested 40 hundred million Yuan to support the key enterprises’ development,
the scientific innovation and expand opening to the outside world, which have infused vigor for the old
Industrial base's development. Liaoning finance positively studied finance and taxation policies
promoting the scientific innovation, proposed the system and mechanism that increasing science input
innovation, strengthened science and technology management, established the state-owned capital
management budget system, and raised the state-owned enterprise reform cost positively. According to
statistics, this year Liaoning province has invested 700 million Yuan on technological renovation funds,
supported technical transformation project of 226 enterprises, which expected to attract bank loans
12.39 billion Yuan, and stimulate social investment 14.75 billion Yuan. In addition, to better support the
implementation of opening-up policy which takes key coastal development as the core of regional
development,Liaoning province studied and formulated a special support policies, investment 180
million Yuan, and actively guided the transformation of the mode of foreign trade growth; used foreign
trade funds and special funds of the old industrial base to engage in outside resources development,
investment in enterprises, project contract and other "going out" projects.
In Liaoning regional economic development, taxation and financial policies is an important lever of
economic operation, which play an important role in promoting regional economic development, but the
unbalanced tax burden of all regions and some unreasonable factors in the tax system influenced
regional economic development, so,reseaches on the financial and taxation policies to promote regional
economic development mechanisms, analysis of the current policy, promotion of scientific and rational
financial and taxation policy are imperative.
The article’s structure is as follows: The second part is about relative literature review; the third
part, based on quantitative analysis method, the paper describes and analyzes the current situation of
Liaoning regional economic development and fiscal revenue; the fourth part summers up the foreign
successful experience of using regional financial and taxation in regional development; the fifth part is
conclusions and recommendations.
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2 The relevant literature review
Researches on the definiteness of regional fiscal and taxation policies: Yi Xu (1996) first proposed
taking regional economic research into the scope of finance theory. Wu Houde (1997) argued because of
the different role, fiscal policy can be divided into micro-finance policy and macroeconomic policy.
Zhang Yun (2005)figured that regional policy is one of the important tools by which Government
(mainly the central government) intervene in regional economy, and further defined that the main body
of regional policy was the central government. Xia Linna (2005) considered that fiscal policy is a series
of financial instruments carried by the regional government in order to achieve the regional economic
targets.
Researches on the effectiveness of regional fiscal and taxation policies: Some scholars believe that
the classical school of fiscal policy is not valid, do not advocate government intervention in the
economy. J.B.Say (1803) put forward the famous "Say law," he didn’t agree with the excessive
intervention in economy; Pigou advocated laissez-faire economy and national non-intervention principle;
Freeman (1963) reckoned that fiscal policy was invalid, while money policies was effective; Buchanan
(1968) in his writings said that western democratic system changed the state intervention into a one-way
management, therefore, the government should restrict fiscal revenue and expenditure. However, group
of scholars supporting Keynes actively advocated fiscal policy intervention in economy, and affirmed
the effectiveness of fiscal policy.
Researches on effects of the regional fiscal and tax policies: Currently, some domestic scholars
empirically study effects of Chinese regional fiscal policy from different angles. Zhu Guangping (2002)
from the perspective of the economic growth and fiscal revenue, through the relevant statistical data,
pointed out that economic growth of China's eastern part was faster then that in central and western
regions, while growth of the tax revenue was in the opposite pattern; Ma Shuanyou (2003) pointed out
that the western region had relatively higher tax burden, and the marginal tax rates in all regions had
negative relationship with economic growth.
Researches on necessary character of region financial policies: one kind is to study necessity of
implementing the region financial policies from the argument between the liberalism and the
interventionism. Keynes (1963) has already pointed out that “the capitalism growth that does not have
the country to keep in balance and intervene has the intrinsic instability. The stagnant tendency of
national economy would fall into a malignant downward because of the multiplication and acceleration
effect”. This judgment is suitable similarly for the region difference research. Therefore, implements of
the region financial policy is inevitable way to reduce the region finance difference and realize the
region finance balanced development. Another kind is analyzing financial policy necessity from the
limited rationality of microscopic main body and the region unbalanced benefit. Many scholars use “the
convict difficult position” to show he part and the overall contradiction caused by asymmetrical
information can’t be solved by the market. In order to realize rational distribution of the region finance
resources and reduce the region difference, the government intervention is indispensable.
3 Liaoning financial revenue and economic development
Since reform and opening up, Liaoning revenue has been continuing to increase as the financial
structure adjustment and economy development. In 1981, Liaoning's financial revenue was 14.94 billion
Yuan, which increased to 108 billion Yuan in 2007; the average annual growth rate is 11.4 %. The
average annual growth of GDP at current prices is 16.1% over the same period, the growth trend of
fiscal revenue is in the same direction with that of GDP. However, observing from time series, the
fluctuation of fiscal revenue increase is relatively strenuous. From the regional budget revenues, annual
average growth is 13.4% from 1982 to 1985, it is 4.5%from1986 to 1990, it is 17% from 1991to 1995, it
is 13.9% from 1996 to 2007. In order to inspect financial revenue and economic development, there are
three key indicators as follows:
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(1) The proportion of fiscal revenue to GDP: On one hand, it reflects the degree of concentration;
On the other hand, it reflects whether the proportion of extraction in economy is appropriate. In general,
with economic development, proportion of fiscal revenue to GDP was gradually rising. At present, the
proportion of developed countries is usually between 40% and 50%, which of developing countries is
between 25 % and 30%. The proportion of financial revenue to GDP in Liaoning in recent years is about
20%, despite the calibre and scope is not comparable, but less centralized finance in Liaoning is an
indisputable fact. Observing from the budget, concentration of the Budget in Liaoning is lower, share of
regional budget revenues in GDP is only about 16%. The disposable financial resources are limited; the
ability of finance to regulate and control the economic and social development in Liaoning is still quite
weak.
(2) Financial income elasticity: flexibility of fiscal revenue to GDP, that is, the ratio of fiscal
revenue growth rate to nominal GDP growth rate. It analyzes and judges whether financial revenue and
economic growth is synchronized. Due to the highly centralized distribution system, average flexibility
of budget revenue to GDP is 2.01 in Liaoning Province; growth rate of fiscal revenue is much higher
than the average economic growth rate. From the reform and opening up to 1994, average flexibility of
budget revenue to GDP in Liaoning is very low, it is 0.6 from 1982 to 1993, and flexibility showed an
upward trend from 1994 to 2007, the average is about 1.19.
(3) Financial marginal income rates: percentage of the increased fiscal revenue to GDP. If the
marginal income is higher than that of the previous financial year or the average income rate (ratio of
fiscal revenue to GDP), it showed that revenues had increased trend, the macro-control capacity has
increased. Taking Liaoning for example, during "the Eighth Five-year Plan period" ,the marginal income
rate is only 7.59 %, during "the Ninth Five-year Plan period”, it reached 14.23%.after the fiscal and
taxation system reform in 1994,, the Financial marginal income rate increased to a certain extent, which
shows the active ingredient of economic growth is greater. At the same time, it also indicates that the
economic effect of new fiscal and taxation system is released.
From the macroeconomic perspective, the major factors affecting fiscal revenue include economic
growth rate, the overall price level and macro-level financial burden. Setting the impact of economic
growth, the overall price level and macro-financial rate to fiscal revenue as following: increase in
financial income = economic growth + increased fiscal revenue caused by the overall price level +
increased fiscal revenue caused by changes of macro-financial rate.
Selecting indicators such as GDP growth, average price index, the proportion of fiscal revenue to
GDP in Liaoning from 1981 to 2007, the results showed that: budget revenues of Liaoning Province in
2007 are 74.26 billion Yuan more than that in 1981. in which, fiscal revenue growth due to the economic
growth was 61.01 billion Yuan, the contribution rate was 79.1%; the incremental revenue due to overall
price increase was 31.12 billion Yuan, the contribution rate was 47.2%; reduced fiscal due to Reduction
of proportion of revenue to GDP is 17.32 billion Yuan, the contribution rate of -26.3%. The above
analysis shows that economy growth is the first impetus for fiscal revenue growth, the rise in the general
price level plays a supporting role, and the decrease of the macro-financial rate has played a reverse role
in the growth of fiscal revenue.
4 Experience from overseas financial policy
(l) Region finance should take the regional economies development project as the instruction. From
various countries' practice, the financial policy that the government provides the development support is
rational choice. Some countries list directly the concrete financial policy in the regional planning, this is
advantageous in enhancing the effectiveness of the financial policy, which can’t highlight the policy
difference and be advantageous for the actual operation, and, but also advantageous to appraisal, the
inspection and the comparison of the policy.
(2) Preferential taxation policies for the undeveloped areas. Including endowing greater tax revenue
management authority to local governments in those areas, giving more tax concessions for investment
projects, setting up resources exploitation and processing zones enjoying revenue favor, giving local
governments more care and so on.
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(3) Enterprises subsidy system for the undeveloped areas. From the experience of some developed
countries, the central government mostly takes the form of subsidies by aiding enterprises in
undeveloped areas, including investment subsidies, employment subsidies, tax expenditures and direct
funding.
(4) Increase infrastructure construction in the undeveloped areas. In the long run, whether the
undeveloped areas can have access to advanced production and social infrastructure is very important
for the development of enterprises, infrastructure construction and maintenance is the key factor of
regional economic development. Housing, schools, universities, hospitals, entertainment equipment, and
other social infrastructure are also important factors attracting investors. The Government doesn’t need
to improve intra-regional and inter-regional infrastructure, but also improve the enterprise infrastructure.
(5) Combine fiscal policy with other policies. States in undeveloped areas often use fiscal policy,
but they do not exclude using administrative means, other financial policies and regional policies. Using
regional support policy to guide capital to less developed regions, States also strongly promote the
control policy of regional economy; restrict capital and population to be concentrated in large cities
and other developed regions.
5 Conclusion and suggestion
5.1 Conclusion
(1) Observing from the budget, concentration of the Budget in Liaoning is lower, share of regional
budget revenues in GDP is only about 16%. The disposable financial resources are limited; the ability of
finance to regulate and control the economic and social development in Liaoning is still quite weak.
(2) during "the Eighth Five-year Plan period" ,the marginal income rate is only 7.59 %, during "the
Ninth Five-year Plan period" ,it reached 14.23%.after the fiscal and taxation system reform in 1994,, the
Financial marginal income rate increased to a certain extent, which shows the active ingredient of
economic growth is greater.
(3) The above analysis shows that economic growth is the first impetus for fiscal revenue growth,
the rise in the general price level played a supporting role, and the decrease of the macro-financial rate
has played a reverse role in growth of fiscal revenue.
5.2 Suggestion
(1) Explore new resources, build up the steady growth mechanism of financial and economic
structure, and promote diversification of revenue. According to the current situation of Liaoning
industry structure, it is necessary to fully push forward a number of large projects, and cultivate a
number of emerging industries. Vigorously support machinery products such as the automobile,
shipbuilding, large sets of equipment, numerical control machine and precision machinery; strengthen
the petrochemical technology research and large-scale production; Focus on the development of
computer , communications equipment manufacturing, digital home appliances and audio-visual
products and electronic components industry; speed up the food processing, textiles and other
labor-intensive , energy-saving and environment-protecting industries.
(2) Further reform and improve the tax system, reduce and regulate all kinds of tax concessions and
relief. Firstly, adjust the tax structure, and increase the proportion of income tax, promote a fair and
reasonable tax system. Secondly, maintain the basic stability of the tax rate, gradually expand the scope
of value-added tax to transportation, telecommunications and production-related industries, while
maintaining the balance of the tax burdens among industries. Thirdly, regulate fees and ban all kinds of
unreasonable charges, bring the reasonable cost of reunification into the government budget
management, take the form of tax charges for the stable and large-scale income sources. Fourthly, clean
up the preferential tax policies. Improve the system of tax expenditure, include the tax favor in
management, maximize their economic and social benefits; according to the requirements of industry
and technology policies, adjust the industry tax favor, projects and products, avoid arbitrariness and
blindness. Fifthly, strengthen tax collection and management .according to law, establish a scientific
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system of tax collection and management, speed up construction of tax information network, improve
the monitoring system, and strive to improve quality of tax management.
(3) Set up joint stock system's city cooperative Bank and the regional Commercial bank, permit
foreign bank to set up branches in some central city, and permit trans-regional financing. Expand the
financing channel of investment institution by using stock and bond. Establish the standard capital
market gradually; attempt to establish the futures market to form the reasonable and competitive price.
Besides, encourage deposit and investment, give more independence to financial institutions, such as
reducing proportion of capital cash, implement the different interest rate, and give certain rate on loan
fluctuation.
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