Local tax effort in Shanghai, 1987-93: Decentralization vs. local fiscal balance

This article seeks to link two major research trends in recent literature o n PRC central-local relations: the growing attention to local governments'f iscal conditions, and the rising impact of local governmental behavior and strategies on the course of the nation 's overall reform program. The goal is to explore the relative explanatory power of two competing effects-local fiscal balance ex ante and the momentum of decentralization throughout the nation-on local tax effort at a given point of time. Chronological compari son is made of tax-collecting behaviors of the municipal government of Shan ghai (a province-level entity) in the area of turnover taxation on state-ow ned enterprises (SOEs) during 1987-88. 1990 and 1992-93. The major discover y is that decentralization overrides local fiscal balance in dictating loca l behavior: an insight which supports the theoretical vitality of factors d erived uniquely from the PRC's political landscape and reveals the weaker e xplanatory power of general theories in political science.