The Impact of Centralized Regional Development Strategy on Local Tax Effort in China

ABSTRACT This paper investigates how China's Western Development Strategy, a large‐scale centralized regional development policy, influences local government tax effort. Leveraging a quasi‐natural experiment based on the geographic delineation of the Strategy, we analyze data from 225 neighboring counties (districts) along the boundary between the western and middle regions from 1998 to 2009. Employing the boundary discontinuity double difference approach, we estimate the impact of the regional development strategy on local government tax effort. Our findings reveal that the Strategy exerts a significant positive effect on tax effort, particularly in areas with lower centralized transfer payments and high turnover rates of local government officials. Additionally, the fiscal stress induced by the Strategy emerges as a critical driver of increased tax effort. This study contributes to the existing literature by providing new causal evidence on local fiscal responses under centralized development initiatives and highlighting the dynamics of central‐local relations in a developing country context.