Combining detailed case studies and clearly specified game-theoretic models, Hiroki Takeuchi provides some informative arguments on how tax reforms in rural China were effectively implemented in the early 2000s, although such reforms exacerbated the fiscal crisis in China’s rural governance. More specifically, Takeuchi builds upon the classic exit-and-voice model proposed by Albert Hirschman and examines the evolving dynamics of governance in rural China since the 1990s, as rural–urban migration transforms the landscape of its taxation, political participation, and governance.
The basic story goes like way: China’s 1994 tax-sharing reforms increased its local governments’ fiscal burden, by centralizing tax revenues and decentralizing expenditures. Despite the burden, Chinese local governments were incentivized to meet the fiscal goals set by their superiors, given the latter’s control over their political careers via the Chinese Communist Party’s (CCP) personnel-management and cadre-evaluation system. Hence, Chinese local governments (township governments, in particular) widely engaged in predatory behavior and policies by aggressively collecting taxes, levies, and fines from peasants. Meanwhile, to promote market-oriented reforms and sustain China’s economic growth, the CCP regime relaxed its control over population mobility and encouraged the provision of cheap labor via rural–urban migration in the 1990s. Although unintended by the CCP, Chinese peasants’ increasing mobility empowered them in resisting the local governments’ predatory behavior and policies and made it even more costly and challenging for the local governments to fulfill the fiscal goals set by their superiors.
All these policies and outcomes were trapped in a vicious circle and, thus, triggered widespread popular resistance and social unrest in rural China in the 1990s. The CCP took the resistance and social unrest seriously, given its priority in sustaining China’s political stability and ensuring its political survival. To tackle such challenges, the CCP expanded the channels for Chinese peasants to participate in local governance (i.e., village elections) and to voice their concerns and report local governments’ predatory behavior (i.e., petitions) and launched tax reforms in rural China. Thanks to the expanded channels for political participation and the eventual abolition of the agricultural tax, Chinese peasants’ financial burden has been significantly relieved. Nevertheless, the fiscal crisis in China’s rural governance has been exacerbated (especially in regions where there is limited industrialization), and the regional disparity in rural governance has been further worsened. Overall, the CCP has effectively claimed credit for relieving peasants’ financial burden, and it solicited high support, though at the cost of letting its local governments shoulder all the blame, as well as leaving local governance in many Chinese villages unattended due to the lack of financial resources.
Takeuchi’s overall findings in Tax Reform in Rural China are consistent with existing literature’s conclusions on China’s rural governance. And there should be little disagreement over the exacerbated fiscal crisis in rural China after the abolition of the agricultural tax; the CCP regime’s sophistication in using local governments as scapegoats for various problems created by itself; and the effectiveness of petitioning in generating responsiveness in Chinese local governments, as well as the CCP regime’s unwavering priority in securing political stability and ensuring its political survival. The author’s original contribution lies in his establishment of an overarching model that integrates taxation, political participation, rural–urban migration, and village governance for analysis, as well as in highlighting the strategic interactions between local governments and villagers under transforming socioeconomic and political circumstances. Using game-theoretic models, he derives multiple equilibria that correspond to different scenarios documented in his in-depth interviews. The existence of multiple equilibria is also compatible with relevant research’s conclusion on the significant regional variation in China’s rural governance.
The attractiveness of game-theoretic modeling lies in its transparency in specifying critical assumptions and its capacity in uncovering nuanced dynamics and related scope conditions (as illustrated by Takeuchi’s exercise in Chapters 5, 6, and 7). How the assumptions are specified usually has significant implications for the derived equilibria and subsequent comparative static analysis. Generally, it is not advisable to criticize game-theoretic models by challenging their assumptions. However, if such assumptions deviate significantly from reality but are essential for the derived equilibria, we should be more cautious and, at least, try alternative assumptions in order to examine the robustness of related findings. Among the assumptions Takeuchi specifies, two might be of significant concern for the students of Chinese rural politics.
Takeuchi’s key argument regarding the challenge posed by rural–urban migration for Chinese local governments’ collection of levies and taxes is that “[i]t was difficult to collect levies from those who were absent from the village” (p. 14). In practice, as the author also recognizes, “the agricultural levies were extracted on the basis of the land allocated to the household. Thus, local cadres had to collect levies from each household regardless of whether they were living in the village” (p. 58). For his argument and game-theoretic models to work as expected, he needs to assume that rural–urban migration in Chinese villages is primarily a decision made and undertaken by households as a whole, rather than by individuals. Otherwise, rural cadres still can collect levies from those staying in villages when their family members migrate to cities. Moreover, in this scenario, the remittance from migrants actually might help their family members staying in villages pay imposed levies and taxes. Then the whole dynamics between rural–urban migration and taxation may change. Takeuchi does recognize the significance of this necessary assumption by noting that “in the late 1980s and the early 1990s it was usually the case that only part of a household left the village; however, in the late 1990s, there were more cases of families emigrating” (p. 106). Unfortunately, this argument has not been substantiated by any secondary literature or official statistics, and contradicts the findings of some relevant research.
One key parameter for Takeuchi’s game-theoretic models is assumed to be exogenous: the tax revenue (T) of local governments (pp. 117, 135). This fixed parameter is critical for assessing the credibility of “exit” as a strategy that villagers may adopt, which further shapes the outcome of their interactions with local governments. The author justifies this assumption of exogeneity by arguing that “the local government cannot decide the amount of T because the superior government sets it” (p. 117). Nevertheless, it is reasonable to argue that the tax revenue of local governments (especially from the villagers’ perspective) is not exogenous but endogenous to villagers’ interactions with local governments. For instance, in the 1990s, many village committees incurred debts (e.g., borrowing from credit associations) to pay for the levies and taxes that could not be collected from peasants despite their efforts. As long as village committees could manage to incur debts to pay for uncollected levies and taxes, for villagers the tax revenue of local governments was no longer an exogenous parameter; accordingly, villagers’ strategic calculations may change. Clearly, how such revised assumptions may affect the derived equilibria can only be checked by further modeling efforts.
The combination of formal modeling and in-depth case studies is a promising approach for uncovering causal mechanisms. Interested scholars may want to extend Takeuchi’s game-theoretic models by using more realistic assumptions and endogenizing some of the parameters. Such exercises should reveal more nuanced dynamics concerning migration, taxation, participation, and local governance, and identify new avenues for research on Chinese politics in particular and authoritarian politics in general.
