2682 
3289As a vital component of the modernization of national governance systems, the fiscal system reform reshapes the entrepreneurial environment by redefining vertical fiscal relationships. However, existing literature predominantly focuses on the direct effect of policy instruments while overlooking the long-term institutional mechanism through which foundational fiscal arrangements affect entrepreneurial activities.
Based on the nationwide county-level industrial and commercial enterprise registration data from 2000 to 2013, this paper employs China’s Province-Managing-County (PMC) reform as a quasi-natural experiment and adopts a multi-period DID model to systematically examine how the sub-provincial fiscal system reform affects entrepreneurial vitality at the county level. The results show that the PMC reform significantly enhances county-level entrepreneurial activities by 6.3% on average. Mechanism testing reveals that the reform stimulates entrepreneurship primarily through expanding local fiscal expenditure scale rather than relaxing tax enforcement. Further evidence shows that increased tax-sharing rates strengthen tax collection efforts via revenue-enhancing incentives, whereas expanded fiscal transfers weaken enforcement intensity through a substitution effect. Heterogeneity analysis highlights a stronger reform effect in economically underdeveloped regions and low-marketization regions.
This paper has the following marginal contributions: First, it constructs a “fiscal governance–local government behavior–entrepreneurial vitality” theoretical framework to systematically decode the transmission mechanism of the sub-provincial fiscal system reform on entrepreneurial vitality, bridging the theoretical gap between the fiscal system reform and entrepreneurship environment research. Second, it elucidates the heterogenous impact of tax-sharing incentives versus fiscal transfer expansion, identifying the enhanced role of fiscal autonomy in optimizing welfare expenditure allocation to activate entrepreneurial vitality. Third, it pioneers the identification of structural heterogeneity in the entrepreneurial effect of the sub-provincial fiscal system reform, providing theoretical foundations for addressing regional disparities in entrepreneurial vitality and designing targeted reform strategies.
