科学研究

Yu received his bachelor degrees in Mathematics and Economics at Wuhan University (2007), Master of Science in Economics at HKUST (2008), and Doctor of Philosophy in Economics at Yale University (2014). He is now an Assistant Professor at Fudan University and specializes in development economics and political economy. His research investigates the role of government in determining firm growth in developing countries, with a focus on public finance mechanisms. He provides professional referee services for the Journal of Development Economics and the Journal of Comparative Economics.  
 

This paper examines the effect of fiscal capacity on local states' market-supporting infrastructure investments and overall economic development. We build a simple model of capital competition among units with heterogeneous tax enforcement costs, and rely on the Golden Tax Project, which obviates the need for Chinese local tax agencies to deter tax evasion through onsite inspections, as a natural experiment to test the model predictions. Exploiting the heterogeneous shock that the reform exerts on the fiscal capacity of Chinese counties with different geographic features, we show that the causal effect of a county’s fiscal capacity on its market-supporting investment and output respectively is, although positive for counties with the lowest capital mobility, significantly more negative in counties where firms face lower relocation costs. We then provide evidence for the reason why capital mobility decreases the positive economic impact of fiscal capacity: under capital mobility, firms that seek to evade taxes have relocated out of counties that experienced a positive fiscal capacity shock from the reform. Our results imply that tax evasion was a real consideration for Chinese firms in determining where to locate and how much capital to invest in each county. Capital mobility, which tends to erode the complementarity between counties' fiscal capacity and market-supporting infrastructure investment, has an equalizing effect on economic outputs across counties with different fiscal capacity.