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  • Author or Editor: Zhiyong An x
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This article examines the causal effect of debt decentralisation on the budget constraint of subnational governments. China’s debt decentralisation reform of 2011 authorised four provincial-level units to issue debt on their own, but not the remaining ones. Using data on the budgetary expenditure and revenue of Chinese subnational governments from 2009 to 2014, we estimate the effect of the reform with a difference-in-differences approach, with those four provincial units as the treatment group and the others as the control group. Our findings suggest that debt decentralisation can help harden the budget constraint of subnational governments.

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We extend the standard optimal linear income taxation model to allow for differences in social and individual work preferences while still maintaining the assumption that individuals are rational. The theoretical and simulation analyses show that when the government places a higher social weight on work than do individuals, the optimal marginal income tax rate (MIT) becomes lower. This implies lower revenue, income guarantee, and overall progressivity. The case for lower MIT is reinforced when the government places a relatively higher weight on work for low earners. Combining our analysis with that of An and Coady (2022), we, on the one hand, agree with previous studies that the optimal nonlinear income tax schedule would be close to the optimal linear one but, on the other, show that the degree of closeness would depend on preference differences. Our work contributes to the burgeoning field of non-welfarist economics.

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