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Zhang, Changdong. (2021). Governing and ruling: the political logic of taxation in China. Ann Arbor: University of Michigan Press

Zhang, Changdong. (2021). Governing and ruling: the political logic of taxation in China. Ann... Jiang Asian Review of Political Economy (2023) 2:2 Asian Review of https://doi.org/10.1007/s44216-023-00012-2 Political Economy BOOK RE VIE W Open Access Zhang, Changdong. (2021). Governing and ruling: the political logic of taxation in China. Ann Arbor: University of Michigan Press 1* Guangming Jiang *Correspondence: gmjiang@stu.pku.edu.cn School of Government, Peking University, Beijing, China Keywords: Authoritarian resilience, Taxation system, Tax state, Welfare dilemma Why are some regimes more resilient than others? How can those long-lasting non- western democratic regimes survive in the transition to a market economy? Based on high-quality field research in China, Changdong Zhang’s book, Governing and Ruling: The Political Logic of Taxation in China, proposes a novel explanation for these clas - sic questions: the taxation system. Zhang argues that the taxation system contributes to the Chinese Communist Party’s (CCP’s) durable “governing and ruling” in China, as the monograph’s title reveals. Zhang develops a fiscal sociology theory of authoritarian resilience, in which he notes that an authoritarian regime faces two dilemmas regarding taxation. First, the growth dilemma: “overtaxation can lead to economic stagnation or even crisis” (p. 30). Second, the representation dilemma: “increasing infrastructural power typically weakens des- potic power” (p. 30) because taxpayers demand more political power. China’s taxation system exerts its political influence through three mechanisms. First, de facto fiscal federalism alleviates the growth dilemma by stimulating local govern - ments’ incentives to develop the economy and resolving the agent-discipline problem. Second, China is a half-tax state due to its heavy reliance on nontax revenues, indirect taxes, and state-owned enterprises for fiscal revenues. This helps reduce citizens’ per - ception of the tax burden while increasing the government’s autonomy, thus alleviat- ing the representation dilemma. Third, the under-institutionalized tax administration, which confers great discretionary power on local agents, alleviates the growth dilemma by lowering the effective tax rates for enterprises. It also helps resolve the representation dilemma given that local governments can threaten to punish private entrepreneurs’ prevalent tax evasion and reduce their bargaining power. © The Author(s) 2023. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the mate- rial. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen ses/ by/4. 0/. Jiang Asian Review of Political Economy (2023) 2:2 Page 2 of 3 However, the taxation system may harm regime resilience in the long run. First, de facto fiscal federalism gives rise to significant variation in local governance. In those regions heavily relying on industries with low asset mobility, governance quality tends to deteriorate as entrepreneurs’ bargaining power is relatively weak. Second, the half-tax state leads to mounting local government debt and economic inequality by creating soft budgetary constraints and a regressive tax burden. Third, the under-institutionalized tax administration gives rise to collusive government-business relations. As Zhang notes, “the current institution of taxation is not a sustainable solution for the dilemmas” (p. 40). Overall, this book provides an elegant theory supported by detailed empirical evi- dence. This theory is clearly articulated and many figures are drawn to illustrate the logi - cal relationship between variables. The theory speaks to several strands of mainstream literature, which endorses its contribution from one aspect. For example, it provides a new explanation, asset mobility, for the Putnam question, namely, how do formal insti- tutions influence the practice of politics and government, mainly in Chapters  4 and 5. In Chapter  3, it makes revisions to the coevolutionary model of market and bureau- cracy proposed by Ang (2016) from the perspective of fiscal reforms. Zhang draws on both first-hand and second-hand data to evaluate this theory. This book is particularly successful at drawing causal conclusions and uncovering causal mechanisms with rich qualitative evidence. Zhang demonstrates the value of the “mechanism-oriented and theory-guided case study” (p. 8) in generating and evaluating hypotheses. The generalizability of this book’s theory merits more discussion in future studies. Zhang has compellingly demonstrated both the internal and external validity of the the- ory across China’s localities. In a brief comparison, Zhang argues that China is neither a “development cluster” like Poland nor a rentier state like Russia; it also differs from “other developing countries where states failed to improve taxation capacities” (p. 236). This raises more questions. Can this theory based on China be applied to explain other authoritarian cases? Are authoritarian states on average more reliant on indirect taxes and nontax revenues than their democratic counterparts, as asserted by Zhang (p. 240)? These questions need to be addressed in future studies by examining more evidence from other countries. Aside from the growth and representation dilemmas, there should be a third taxation dilemma that deserves further research, which I call “the welfare dilemma”. The welfare dilemma refers to the contradiction between taxpayers’ increasing demands for social welfare and the authoritarian rulers’ unwillingness to spend in providing public goods. On the one hand, authoritarian rulers generally prefer to spend money in rewarding their small-scale winning coalition rather than providing public goods (Mesquita et  al. 2003). On the other hand, taxpayers will demand better welfare as a reward for their taxes. It differs from the representation dilemma by focusing on economic returns and social security, rather than political rights. Since it is unrealistic, even dangerous, for taxpayers to demand political representation, the welfare dilemma might be more rel- evant than the representation dilemma in China. The taxation system also has impacts on the welfare dilemma. First, the half-tax state could alleviate the welfare dilemma since it weakens citizens’ perception of their tax bur- den. Second, under de facto fiscal federalism, local governments are motivated to grow the economy, but under what circumstances will they compete by offering public goods Jiang Asian Review of Political Economy (2023) 2:2 Page 3 of 3 and social welfare? According to Tiebout (1956), improving residents’ mobility through overhauling the household registration system probably would help resolve the welfare dilemma. Third, the under-institutionalized tax administration helps alleviate the welfare dilemma, but this effect should be much weaker than on the representation dilemma. The middle class, which contributes much to income taxes and land-related revenues of local governments, might be the driving force for social welfare. The administration poses great uncertainty and fear for private entrepreneurs, but cannot effectively deter the middle class because they are more mobile than industrial assets. However, to better know how the taxation system influences the welfare dilemma, more concrete hypoth - eses need to be generated and tested. To conclude, Governing and Ruling is a compelling and inspiring work. Zhang offers a novel perspective to comprehend the politics of taxation and authoritarianism. It has rich implications for scholars and policy-makers and deserves a wide readership. Acknowledgements Not applicable. Author’s contributions All authors are involved in theory construction, case analysis and article writing. All author(s) read and approved the final manuscript. Funding Open access funding provided by Shanghai Jiao Tong University. Availability of data and materials Not applicable. Declarations Competing interests The authors declare that they have no competing interests. Received: 10 May 2023 Accepted: 15 May 2023 References Ang, Yuen Yuen. 2016. How China escaped the poverty trap. Ithaca; London: Cornell University Press. Mesquita, Bruce Bueno de, Alastair Smith, Randolph M. Siverson, and James D. Morrow. 2003. The logic of political survival. Cambridge: The MIT Press. Tiebout, Charles M. 1956. A pure theory of local expenditures. Journal of Political Economy 64 (5): 416–424. Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian Review of Political Economy Springer Journals

Zhang, Changdong. (2021). Governing and ruling: the political logic of taxation in China. Ann Arbor: University of Michigan Press

Jiang, Guangming
Asian Review of Political Economy , Volume 2 (1) – Apr 17, 2023
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Jiang Asian Review of Political Economy (2023) 2:2 Asian Review of https://doi.org/10.1007/s44216-023-00012-2 Political Economy BOOK RE VIE W Open Access Zhang, Changdong. (2021). Governing and ruling: the political logic of taxation in China. Ann Arbor: University of Michigan Press 1* Guangming Jiang *Correspondence: gmjiang@stu.pku.edu.cn School of Government, Peking University, Beijing, China Keywords: Authoritarian resilience, Taxation system, Tax state, Welfare dilemma Why are some regimes more resilient than others? How can those long-lasting non- western democratic regimes survive in the transition to a market economy? Based on high-quality field research in China, Changdong Zhang’s book, Governing and Ruling: The Political Logic of Taxation in China, proposes a novel explanation for these clas - sic questions: the taxation system. Zhang argues that the taxation system contributes to the Chinese Communist Party’s (CCP’s) durable “governing and ruling” in China, as the monograph’s title reveals. Zhang develops a fiscal sociology theory of authoritarian resilience, in which he notes that an authoritarian regime faces two dilemmas regarding taxation. First, the growth dilemma: “overtaxation can lead to economic stagnation or even crisis” (p. 30). Second, the representation dilemma: “increasing infrastructural power typically weakens des- potic power” (p. 30) because taxpayers demand more political power. China’s taxation system exerts its political influence through three mechanisms. First, de facto fiscal federalism alleviates the growth dilemma by stimulating local govern - ments’ incentives to develop the economy and resolving the agent-discipline problem. Second, China is a half-tax state due to its heavy reliance on nontax revenues, indirect taxes, and state-owned enterprises for fiscal revenues. This helps reduce citizens’ per - ception of the tax burden while increasing the government’s autonomy, thus alleviat- ing the representation dilemma. Third, the under-institutionalized tax administration, which confers great discretionary power on local agents, alleviates the growth dilemma by lowering the effective tax rates for enterprises. It also helps resolve the representation dilemma given that local governments can threaten to punish private entrepreneurs’ prevalent tax evasion and reduce their bargaining power. © The Author(s) 2023. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the mate- rial. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen ses/ by/4. 0/. Jiang Asian Review of Political Economy (2023) 2:2 Page 2 of 3 However, the taxation system may harm regime resilience in the long run. First, de facto fiscal federalism gives rise to significant variation in local governance. In those regions heavily relying on industries with low asset mobility, governance quality tends to deteriorate as entrepreneurs’ bargaining power is relatively weak. Second, the half-tax state leads to mounting local government debt and economic inequality by creating soft budgetary constraints and a regressive tax burden. Third, the under-institutionalized tax administration gives rise to collusive government-business relations. As Zhang notes, “the current institution of taxation is not a sustainable solution for the dilemmas” (p. 40). Overall, this book provides an elegant theory supported by detailed empirical evi- dence. This theory is clearly articulated and many figures are drawn to illustrate the logi - cal relationship between variables. The theory speaks to several strands of mainstream literature, which endorses its contribution from one aspect. For example, it provides a new explanation, asset mobility, for the Putnam question, namely, how do formal insti- tutions influence the practice of politics and government, mainly in Chapters  4 and 5. In Chapter  3, it makes revisions to the coevolutionary model of market and bureau- cracy proposed by Ang (2016) from the perspective of fiscal reforms. Zhang draws on both first-hand and second-hand data to evaluate this theory. This book is particularly successful at drawing causal conclusions and uncovering causal mechanisms with rich qualitative evidence. Zhang demonstrates the value of the “mechanism-oriented and theory-guided case study” (p. 8) in generating and evaluating hypotheses. The generalizability of this book’s theory merits more discussion in future studies. Zhang has compellingly demonstrated both the internal and external validity of the the- ory across China’s localities. In a brief comparison, Zhang argues that China is neither a “development cluster” like Poland nor a rentier state like Russia; it also differs from “other developing countries where states failed to improve taxation capacities” (p. 236). This raises more questions. Can this theory based on China be applied to explain other authoritarian cases? Are authoritarian states on average more reliant on indirect taxes and nontax revenues than their democratic counterparts, as asserted by Zhang (p. 240)? These questions need to be addressed in future studies by examining more evidence from other countries. Aside from the growth and representation dilemmas, there should be a third taxation dilemma that deserves further research, which I call “the welfare dilemma”. The welfare dilemma refers to the contradiction between taxpayers’ increasing demands for social welfare and the authoritarian rulers’ unwillingness to spend in providing public goods. On the one hand, authoritarian rulers generally prefer to spend money in rewarding their small-scale winning coalition rather than providing public goods (Mesquita et  al. 2003). On the other hand, taxpayers will demand better welfare as a reward for their taxes. It differs from the representation dilemma by focusing on economic returns and social security, rather than political rights. Since it is unrealistic, even dangerous, for taxpayers to demand political representation, the welfare dilemma might be more rel- evant than the representation dilemma in China. The taxation system also has impacts on the welfare dilemma. First, the half-tax state could alleviate the welfare dilemma since it weakens citizens’ perception of their tax bur- den. Second, under de facto fiscal federalism, local governments are motivated to grow the economy, but under what circumstances will they compete by offering public goods Jiang Asian Review of Political Economy (2023) 2:2 Page 3 of 3 and social welfare? According to Tiebout (1956), improving residents’ mobility through overhauling the household registration system probably would help resolve the welfare dilemma. Third, the under-institutionalized tax administration helps alleviate the welfare dilemma, but this effect should be much weaker than on the representation dilemma. The middle class, which contributes much to income taxes and land-related revenues of local governments, might be the driving force for social welfare. The administration poses great uncertainty and fear for private entrepreneurs, but cannot effectively deter the middle class because they are more mobile than industrial assets. However, to better know how the taxation system influences the welfare dilemma, more concrete hypoth - eses need to be generated and tested. To conclude, Governing and Ruling is a compelling and inspiring work. Zhang offers a novel perspective to comprehend the politics of taxation and authoritarianism. It has rich implications for scholars and policy-makers and deserves a wide readership. Acknowledgements Not applicable. Author’s contributions All authors are involved in theory construction, case analysis and article writing. All author(s) read and approved the final manuscript. Funding Open access funding provided by Shanghai Jiao Tong University. Availability of data and materials Not applicable. Declarations Competing interests The authors declare that they have no competing interests. Received: 10 May 2023 Accepted: 15 May 2023 References Ang, Yuen Yuen. 2016. How China escaped the poverty trap. Ithaca; London: Cornell University Press. Mesquita, Bruce Bueno de, Alastair Smith, Randolph M. Siverson, and James D. Morrow. 2003. The logic of political survival. Cambridge: The MIT Press. Tiebout, Charles M. 1956. A pure theory of local expenditures. Journal of Political Economy 64 (5): 416–424. Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Journal

Asian Review of Political Economy – Springer Journals

Published: Apr 17, 2023

Keywords: Authoritarian resilience; Taxation system; Tax state; Welfare dilemma

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