Research on the Effect of Tax Incentives on the Development of
Western China
Xiangzhangyi Si
School of Public Administration, Guangxi University, Nanning, 530004, China
Keywords: Western Development, Tax Policy, Regional Coordinated Development, Industrial Revitalization.
Abstract: China is in a period of economic transformation, but the phenomenon of unbalanced regional economic de-
velopment is prominent, to alleviate this phenomenon, China implemented the strategy of Western develop-
ment at the beginning of this century. Tax policy development is closely related to the macroeconomic situa-
tion, so western tax incentives play an important role in the revitalization process of western China. This paper
analyzes and combs through the classification of the relevant literature on the effect of the Western develop-
ment tax preferential policy and explores the research results of the policy in terms of the macro effect and
micro effects of the policy. Finally, this paper comprehensively analyzes the implementation effect of the
policy and the shortcomings of the existing research and puts forward the corresponding recommendations
for subsequent scholars to study the implementation effect and impact of the tax incentives to provide help.
1 INTRODUCTION
Tax policy is the core tool of national macro-control,
and a reasonable tax policy plays a crucial role in
optimizing resource allocation, narrowing the gap
between the rich and the poor, achieving smooth
economic operation, stimulating enterprise
innovation, and coping with economic crises. Since
the reform and opening up, China's economic level
has been rising, and people's lives have become
increasingly happy, but due to the constraints of
natural conditions and other factors, the economic
growth of the Western region has been slow. This has
led to the aggravation of China's regional economic
development imbalance, which is not conducive to
social stability and long-term peace and security. To
alleviate the problem of unbalanced regional
development and promote the development of the
West, China fully implemented the Western
Development Strategy in 2001 to support and develop
the Western economy. 2011, the Ministry of Finance,
the General Administration of Customs, and the State
Administration of Taxation jointly issued the Circular
on Issues Concerning Tax Policies for the In-depth
Implementation of the Strategy for the Development
of the West, which stipulates that enterprises of
encouraged industries located in the Western region
shall be subject to a reduced tax rate of 15%. The
enterprise income tax rate is reduced by 15%. Tax
incentives not only mobilize local governments to
develop their economies but also play an important
role in supporting local characteristics and key
industries and promoting enterprise development.
It has been more than twenty years since the
implementation of the strategic tax incentives for the
development of the Western region, and when the
second round of tax incentives expired, China
optimized the policy and extended it for ten years,
which shows that the policy still plays an important
role in coordinating regional development. Therefore,
it is of great significance to summarize the literature
on this policy. Based on reading the literature related
to the Western development strategy tax incentives,
this paper introduces the background and policy
content of the Western development strategy tax
incentives, screens the articles with high relevance to
the topic of this paper and sorts out the related
literature, and summarizes the existing research in the
academic field according to the results of the articles.
To explore whether the Western development
strategy tax policy can promote Western economic
growth, narrow the regional development gap plays a
positive role.
200
Si, X.
Research on the effect of tax incentives on the development of Western China.
DOI: 10.5220/0013977000004912
Paper published under CC license (CC BY-NC-ND 4.0)
In Proceedings of the 1st International Conference on Innovative Education and Social Development (IESD 2025), pages 200-204
ISBN: 978-989-758-779-5
Proceedings Copyright © 2025 by SCITEPRESS – Science and Technology Publications, Lda.

2 BACKGROUND AND CONTENT
OF THE IMPLEMENTATION OF
TAX INCENTIVES FOR THE
WESTERN DEVELOPMENT
STRATEGY
The Western Development Strategy is an important
national strategy implemented by the Chinese
government to promote coordinated regional
development and narrow the development gap
between the Eastern and Western regions. The
strategy aims to promote the economic and social
development of the Western region and to incentivize
the development of characteristic advantageous
industries and emerging industries in the Western
region through preferential tax policies in order to
promote industrial transformation and upgrading. The
policy stipulates that enterprises in the encouraged
industries in the Western region can enjoy a reduced
enterprise income tax rate of 15%, which has a
significant advantage over the national standard
enterprise income tax rate of 25%. In addition, the
policy also relaxes the requirement for the proportion
of enterprises' income from the main business, from
70% to 60%, enabling more enterprises to enjoy tax
incentives. The Western region includes 12 provinces
(autonomous regions and municipalities) such as
Inner Mongolia, Guangxi, Chongqing and the
Xinjiang Production and Construction Corps, and
some autonomous regions and Ganzhou City can also
be implemented mutatis mutandis. The Catalogue of
Encouraged Industries in the Western Region, led by
the Development and Reform Commission, is the
main basis for enterprises to enjoy preferential tax
policies. Through the implementation of these tax
incentives, the Western region has reduced or
exempted enterprises' taxes by more than RMB 400
billion, effectively promoting industrial
transformation and upgrading as well as economic
development. In the follow-up management, the tax
authorities may, in respect of the main business of an
enterprise that is difficult to define, request the
relevant departments such as development and reform
to issue opinions to ensure the precise implementation
of the policies. Together, these measures constitute
the framework of the tax incentive policy of the
Western Development Strategy, which aims to
promote high-quality economic and social
development in the Western region through tax
incentives.
3 MACRO EFFECTS OF TAX
INCENTIVES FOR WESTERN
DEVELOPMENT
American scholar Arthur B Laffer (2004) put forward
the "Laffer Curve" in the 1970s, which depicts the
impact of different tax rates on tax revenue and the
economy, i.e. in general, raising tax rates can increase
government tax revenue. However, when the tax rate
is increased beyond a certain limit, the operating cost
of enterprises will be increased, investment will be
reduced and income will be decreased, i.e., the tax
base will be reduced, which in turn will lead to a
decrease of tax revenue of the government. The
impact of tax incentives for Western development on
China's macroeconomy has been a topic of intense
debate in the academic community, and there are two
main points of view.
3.1 Favorable for Economic Growth
Keith (1983) examines panel data on tax incentives in
several countries and finds that low tax burdens
resulting from tax cuts can promote macroeconomic
growth. It can be seen that tax policy, as a powerful
means of regulating the macroeconomy, plays an
important role in the Western economy. Zeng
Zhiyong and Li Junjie (2011) concluded by analyzing
the panel data of Enshi, Hubei, that the tax revenue
preference policy promotes economic development
and industrial structure optimization. Dong Guanghui
(2018) demonstrated a series of economic growth
data based on the Sichuan national tax perspective
and found that the comprehensive implementation of
tax incentives for Western development has strongly
cooperated with the implementation of the overall
strategy of China's Western development. Based on
the survey data of nearly 5,000 enterprises in
Chongqing Municipality, Zhang Bo and Li Jing
(2009) studied the implementation of the tax
preferential policies for the development of Western
China, the implementation effects and problems, and
found that the tax preferential policies play an
important role in promoting the economic growth of
Chongqing Municipality through the comprehensive
effect, and have a positive impact on the development
of enterprises and the formation of advantageous
industries. The study shows that tax preferential
policies play an important role in promoting
macroeconomic growth and optimizing industrial
structure. Through tax cuts and fee reductions, it not
only stimulates market vitality, but also promotes
scientific and technological innovation and industrial
Research on the effect of tax incentives on the development of Western China
201

upgrading, and provides strong support for the
implementation of the strategy of Western
development.
3.2 Unfavorable for Economic Growth
Some scholars have questioned the effectiveness of
tax incentives on economic growth in the Western
region. Ma Shuanyou and Yu Hongxia (2003)
empirical study found that the tax burden in the
Western region is obviously characterized by a high
tax burden when compared with the central region,
which has a relatively comparable level of economic
development, suggesting that the tax policy in the
Western region does not play a significant role in
actually promoting economic development. Luo
Mingling, Fan Ziying and Chen Chen (2019) believe
that taxes can change the enterprise and factor flows
to a large extent, and regional tax incentives, as a kind
of guiding very clear policy, have a double impact on
the regional economy, on the one hand, low-tax
regions can attract capital inflow, effectively expand
the tax base, and promote economic development; on
the other hand, high-tax regions, due to the increase
in the relative tax burden, lead to the loss of resources,
economic development is affected, and economic
development is affected. On the other hand, high-tax-
rate regions are affected by the loss of resources due
to the increase in relative tax burden, which indicates
that the design and implementation of tax incentives
need to take into account the balance and
coordination between regions. Liu Ruiming and Zhao
Renjie (2015) studied the impact of the Western
development policy on economic development, using
the PSM-DID method to further identify the
mechanism found that the Western development had
a hindering effect on industrial restructuring, and also
failed to effectively attract private investment and
foreign investment. Yu Jingyuan (2021), in his
analysis of tax data in the Western region, concluded
that the Western development policy increased local
government transfer dependence and fiscal
imbalance. The effectiveness of tax incentives on
economic growth in the Western region is
controversial, which requires policymakers to fully
consider regional differences, market mechanisms
and the long-term effects of policies when
formulating and implementing policies in order to
achieve coordinated regional economic development.
At the same time, the evaluation and monitoring of
the effectiveness of the policies should be
strengthened to ensure that the tax incentives can
truly promote economic growth and social progress in
the Western region.
4 MICRO EFFECTS OF TAX
INCENTIVES FOR WESTERN
DEVELOPMENT
Tax policy not only affects the regional
macroeconomy but also influences the development
of enterprises. Liu Jun and Qiu Changsol (2006)
conducted an empirical study from the three
perspectives of the impact of tax policy on economic
growth, production and business activities of
companies, and local revenue, and concluded that tax
incentives have significantly advanced the economic
growth in the west, and the capital profitability of
enterprises has significantly increased, but the driving
effect of tax incentives on economic growth has been
diminishing with the passage of time. Raffaello
Bronzini and Paolo Piselli (2016) study the impact of
tax incentives on firms' innovation and find that a
lower tax rate on patent income boosts the number of
patent applications and innovation capacity, a
phenomenon that is particularly pronounced among
small firms. Ernst C., Richter K. and Riedel N. (2013)
examined the impact of tax incentives on firms' R&D
activities and found that all three forms of tax
incentives - special tax breaks, tax credits, and lower
tax rates - are effective in increasing the amount of
R&D-related activities. Eric (2019) estimated the
impact of the adoption of tax incentives on the
manufacturing sector in the US states and found that
tax incentives reduce the cost of new investment by
firms and can stimulate firms to invest and improve
firm performance. This illustrates the positive role of
tax incentives as an effective economic regulatory
tool in increasing firms' profits, incentivizing firms'
innovation and R&D activities, and enhancing firms'
performance.
5 SUGGESTIONS FOR THE
CONTINUATION OF TAX
INCENTIVES FOR WESTERN
DEVELOPMENT
5.1 Implementation of Graded Tax
Incentives
The support of tax incentives is indispensable in the
process of striving to realize the industrialization of
the Western region (Zhang & Li, 2009). The most
important viewpoint of the gradient tax preference
policy lies in its ability to reduce the tax burden on
enterprises, especially to support small, medium and
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micro enterprises and key industries, and to enhance
their capital strength and internal development power.
At the same time, the gradient tax preference policy
gives full play to the regional adjustment effect of the
tax preference policy by implementing different tax
preferences for enterprises in different regions and
industries, plays the redistributive role of the
government by setting up different tax policies for
different regions, realizes the flow of resources
between regions, promotes the optimization of the
industrial structure and the coordinated development
of the region, and realizes the principle of "the first to
be rich will bring the later to be rich" so as to promote
economic growth and the development of the
economy. "The first to get rich will lead the second to
get richer", thus promoting economic growth and
social development.
5.2 Expanding the Target Beneficiaries
of Tax Incentives
Refining and improving the Catalogue of Encouraged
Industries in the Western Region, promotes the
cultivation of advantageous industries and
characteristic industries in the Western region. By
reducing the tax burden of enterprises in specific
industries and trades, the Western region has been
incentivized to develop characteristic advantageous
industries and emerging industries, which is
conducive to the formation of strategic emerging
industry clusters and advanced manufacturing
clusters in the Western region. In addition, business
tax concessions have been implemented for a few
special industries in Western provinces and
municipalities (Zhang & Li, 2009). In 2008, the local
tax structure of Gansu Province was 813 million yuan
in corporate income tax and 16.280 billion yuan in
business tax. It can be seen that the implementation
of business tax concessions for some industries in the
Western region in urgent need of development
support is conducive to increasing support and
strengthening the effectiveness of policy
implementation.
5.3 Appropriate Enhancement of the
Flexibility of Tax Systems
The Western region is a vast area involving many
provinces, with varying levels of development in each
region and changing development dynamics. In view
of the vast territory and diversified development
needs of the Western region, it is necessary to give
the Western regional government the right to propose
tax relief industries. Provincial governments should
be allowed to make moderate adjustments to the
catalog of tax-preferential industries within the
prescribed framework according to the industrial
characteristics, resource conditions, and ecological
protection needs of the region, so as to better adapt to
and promote the economic and social development of
the region. The preferential tax policy for the
development of the Western region will better play a
regulatory role in fully stimulating the vitality of the
local economy, effectively promoting coordinated
regional development, and realizing the goal of
coordinated regional development.
6 GAPS IN THE EXISTING
LITERATURE AND
PERSPECTIVES FOR FUTURE
RESEARCH
In the research on tax incentives for Western
development, a large number of valuable research
results have emerged in the past two decades. The
academic research on the preferential tax policy for
the development of the Western region has focused
on policy effects and policy improvement, etc. Rich
research results have been achieved in these areas,
and the question of whether the preferential tax policy
for the development of the Western region can
promote the long-term development of the national
economy from the perspectives of the industrial
structure, foreign investment, and the total amount of
the local economy has been investigated, which has
provided China with a rich theoretical basis for the
development of its tax policy and practical
experience.
Although these studies provide valuable insights
for researchers, research still face many challenges.
The current study is deficient in terms of the policy
formulation process and lacks sufficient theoretical
support and validation in terms of recommendations
for policy improvement. In addition, most of the
studies only focus on specific regions for data
collection and analysis, but this may lead to problems
such as under-representation of samples and data
bias, thus limiting the generalizability and reliability
of the conclusions. Currently, most studies in the
academic community use the double-difference
method as well as the case study method, and in future
studies, interdisciplinary cooperation should be
encouraged to integrate the cross-study method into
the study of tax incentives for the development of
Western China, in order to form a more
comprehensive and holistic perspective of the study.
Research on the effect of tax incentives on the development of Western China
203

In addition, the research results should be applied to
the updating and improvement of tax incentives for
Western development in order to test their
effectiveness and practicality and to promote the
development of the field.
7 CONCLUSION
Summarizing the above summarization and analysis
of domestic and foreign research literature, the
research of domestic scholars mainly presents two
distinct views. The research results show that
although there is still controversy on the impact of tax
incentives on the macroeconomy, tax incentives have
a significant role in promoting the growth of
enterprises, improving profitability and enhancing
market competitiveness, thus favoring the healthy
development of the microeconomy. Although
scholars at home and abroad have studied from
different perspectives, presenting a diversified
situation, in general, the research focuses on both
macroeconomics and microeconomics and in terms of
practical research, it also focuses on the general state
of the economy and the cases of enterprises. The
research on tax incentives by scholars at home and
abroad has provided a rich theoretical foundation for
economic development and has also played an
important role in promoting the government's tax
policy and regional development policy formulation.
This study helps scholars identify the gaps and
shortcomings in the research by sorting out and
evaluating the existing research results, and also
promotes the construction and validation of the
theoretical framework. In addition, comparing and
contrasting the theories and models of different
researchers deepens the understanding of the effects
of tax incentives on Western development. It is found
that the current academic research on the effect of tax
incentives for Western development has a single
method, mostly using case analysis or double-
difference methods, and future research can be
conducted through interdisciplinary cross-study
methods, thus providing a multi-dimensional solution
to the research problem of the effect of tax incentives
for Western development. There are still some
limitations in this study, which may lack timeliness
due to the influence of literature publication and the
research process in this field.
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