Tax Administration Reform, Tax Fairness, and a Unified National Market

【Authors】

LI Jianjun, WU Zhouyi, ZHAO Wei & LI Chao

【WorkUnit】

Southwestern University of Finance and Economics, 611130.

【Abstract】

A fair and unified tax system is crucial for establishing a modern fiscal and taxation framework, constructing a unified national market, and developing a high-level market economy. While China’s decentralized tax administration system, which grants local governments a degree of “tax discretion”, significantly supported local economic growth, it has led to substantial regional disparities in effective tax rates across regions. These disparities undermine tax fairness, distort market price mechanisms in resource allocation, and hinder the full realization of modern fiscal and taxation functions, ultimately falling short of the demand for high-quality economic development.
This study leverages the tax administration reform as a quasi-natural experiment. Using national tax survey data from 2016 to 2020 and listed company data from 2014 to 2022, and a difference-in-differences approach, we assess the impact of unified tax enforcement on corporate tax fairness and the development of a unified national market. Our findings show that the reform significantly reduced deviations in corporate income tax burdens through “standardized administration” and “tax compliance” effects, thereby promoting tax fairness. Heterogeneity analysis reveals that the “tax fairness” effect of the reform is more effective in regions with stronger government intervention, low fiscal governance levels, and significant differences in fiscal pressure and tax administration levels. Further analysis indicates that the reform effectively lowered firms’ non-institutional transaction costs, facilitated cross-regional procurement and capital factor mobility, and contributed to a unified national market, ultimately enhancing firms’ capital allocation efficiency.
This study contributes to the literature in four ways. First, from the perspective of tax administration, it empirically demonstrates the critical role of independent tax enforcement in ensuring tax law enforcement and achieving tax fairness, providing evidence for upholding the principle of tax legality through independent enforcement. Second, it offers theoretical and empirical insights into the importance of unified tax enforcement in establishing a modern tax system and optimizing national governance. Third, it expands research on the unified national market by introducing the perspective of tax fairness. Fourth, it provides policy-relevant support for planning the next round of fiscal and tax reforms to promote the construction of a unified national market and create a new development dynamic that focuses on domestic economic flow and features positive interplay between domestic flow and international engagement.
The following policy recommendations are made: First, further standardize tax enforcement and local non-institutional, non-standardized tax incentives to improve the tax legal environment and maintain fair market competition. Second, strengthen government capacity building to enhance the service level of the unified national market. Third, adjust local government objectives and incentive mechanisms to promote efficient collaboration in building a unified national market.

JEL: D21, H21, H71

【KeyWords】

Tax Administration, Tax Fairness, Unified National Market