Tax sharing and urban entrepreneurship: an analysis based on China's VAT revenue sharing reform

Tax sharing and urban entrepreneurship: an analysis based on China's VAT revenue sharing reform | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Tax sharing and urban entrepreneurship: an analysis based on China's VAT revenue sharing reform Yumeng Pang, Suhua Chen, Yuyang Zhang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8226335/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 8 You are reading this latest preprint version Abstract Tax revenue sharing reshapes fiscal relations between central and local governments, thereby influencing local fiscal capacity, expenditure behavior, and development strategies, and ultimately playing a pivotal role in urban growth. Yet, little is known about how tax revenue sharing affects urban entrepreneurship. This paper investigates this relationship by exploiting China’s 2016 value-added tax (VAT) revenue-sharing reform as a quasi-natural experiment, applying a difference-in-differences (DID) approach. The findings reveal that an increased local VAT retention ratio significantly promotes urban entrepreneurship, with the effect being more pronounced in non-resource-based cities and eastern regions. Mechanism analysis suggests that the reform fosters entrepreneurship primarily by incentivizing local governments to expand public services and infrastructure investment. Further evidence indicates that the positive effect of tax revenue sharing on entrepreneurship is stronger in regions with higher fiscal self-sufficiency, more intense intergovernmental tax competition, and lower levels of government intervention. JEL Code： H71 tax revenue sharing VAT urban entrepreneurship China Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Review Version 1 posted Reviewers agreed at journal 22 May, 2026 Reviews received at journal 08 Feb, 2026 Reviewers agreed at journal 09 Dec, 2025 Reviewers agreed at journal 08 Dec, 2025 Reviewers invited by journal 08 Dec, 2025 Editor assigned by journal 02 Dec, 2025 Submission checks completed at journal 28 Nov, 2025 First submitted to journal 27 Nov, 2025 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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