Implementation of Profit Remission in Guangzhou, 1983-95: Effects of Policy Regime and Revenue Incentive

Abstract

This article seeks to explain the success of China`s 1994 tax-assignment reform in bringing about recentralization of fiscal power. Most of the current analyses invoke the static policy rules only; the argument of this research is that much more attention ought to be paid to the dynamic implementation at the local level. To this end, this article explains the implementation of the policy of profit remission from state-owned enterprises (SOEs)-a key issue area of tax policy in China-from 1983 to 1993 and from 1994 to 1995 in the city of Guangzhou in Guangdong Province. This paper shows that Guangzhou`s actual implementation turned out to be much less effective at deflecting revenue away from the center from 1994 to 1995 than from 1983 to 1993, a fact which highlights the importance of implementation for understanding the outcome of recentralization after 1994. Empirical analysis also shows that the major factor contributing to the changing implementation pattern was the transformation of policy regime, which overrode the competing factor of revenue incentive.