China like other transition economies needs to establish a tax regime compatible with a market economy. The paper singles out the general and China-specific features by which national legislation attempts to accompany economic transformation. Based on an empirical study in two provinces this paper shows that without including local government agencies and their budgets, China’s fiscal federalism cannot be analysed. This paper argues that China’s emerging tax regime depends on the institutional design that shapes the interaction between firms (as major tax payers at the local level), local government agencies, and the national tax administration.

China, Fiscal Federalism, Tax Farming, Tax Regime, transition economy
Multinational Firms; International Business (jel F23), Taxation, Subsidies, and Revenue: General (jel H20), State and Local Government; Intergovernmental Relations: General (jel H70), Business Administration and Business Economics; Marketing; Accounting (jel M), Corporate Culture; Social Responsibility (jel M14), Public Economics (jel P35)
ERIM Report Series Research in Management
Erasmus Research Institute of Management

Krug, B, Zhu, Z, & Hendrischke, H. (2004). China’s emerging tax regime: Devolution, fiscal federalism, or tax farming? (No. ERS-2004-113-ORG). ERIM Report Series Research in Management. Retrieved from