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Fiscal Decentralization in China: History, Impact, Challenges and Next Steps

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Author Info

  • Chunli Shen

    (CEMA, Central University of Finance and Economics)

  • Jing Jin

    (CEMA, Central University of Finance and Economics)

  • Heng-fu Zou

    (CEMA, Central University of Finance and Economics, Shenzhen University)

Abstract

Fiscal decentralization has been a fundamental aspect of China's transition to a market economy; and the country has made substantial efforts to break down its highly centralized fiscal management system with various forms of fiscal contracting systems (1978-1993) and later a tax sharing system (1994-present). The objectives of this paper are to provide a comprehensive review of China¡¯s experience in fiscal decentralization over the last decade, explore the impact of fiscal decentralization on growth and public expenditures, and identify political as well as economic issues arising after 1994 tax sharing reform. As the government is shifting the development policy towards building a harmonious society, aspects of the current fiscal system that require policy attention include the opaque and inappropriate expenditure assignment, particularly at the sub-provincial levels; the vertical fiscal gap and widening fiscal disparities; the complex and malfunctioning intergovernmental transfer system; the neglected sub-provincial fiscal arrangements; and the weakness in the vertical accountability of local governments to the Center as well as the horizontal accountability of local administrations to the local needs and preferences.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 13 (2012)
Issue (Month): 1 (May)
Pages: 1-51

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Handle: RePEc:cuf:journl:y:2012:v:13:i:1:n:1

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Keywords: Fiscal decentralization; Corruption; Financial burden; China;

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References

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  1. Jing Jin & Chunli Shen & Heng-fu Zou, 2011. "Fiscal Decentralization and Peasants' Financial Burden in China," CEMA Working Papers 490, China Economics and Management Academy, Central University of Finance and Economics.
  2. Jing Jin & Heng-fu Zou, 2003. "Soft Budget Constraints on Local Government in China," CEMA Working Papers 132, China Economics and Management Academy, Central University of Finance and Economics.
  3. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
  4. Kanbur, Ravi & Zhang, Xiaobo, 2001. "Fifty Years of Regional Inequality in China: A Journey through Revolution, Reform and Openness," CEPR Discussion Papers 2887, C.E.P.R. Discussion Papers.
  5. Chunli Shen & Heng-fu Zou, 2006. "China: Regional Disparities In Poverty Distribution," CEMA Working Papers 252, China Economics and Management Academy, Central University of Finance and Economics.
  6. Chunli Shen & Heng-fu Zou, 2008. "Fiscal Decentralization and Public Services Provision in China," CEMA Working Papers 330, China Economics and Management Academy, Central University of Finance and Economics.
  7. Huang, Yasheng, 1996. "Central-local relations in china during the reform era: The economic and institutional dimensions," World Development, Elsevier, vol. 24(4), pages 655-672, April.
  8. Anwar Shah & Theresa Thompson & Heng-fu Zou, 2004. "Decentralising the public sector: The Impact of Decentralisation on Service Delivery, Corruption, Fiscal Management and Growth in Developing and Emerging Market Economies: A Synthesis of Empirical Evi," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 2(1), pages 10-14, October.
  9. Jing Jin & Heng-fu Zou, 2004. "Fiscal decentralization, revenue and expenditure assignments, and growth in China," CEMA Working Papers 169, China Economics and Management Academy, Central University of Finance and Economics.
  10. Zhihua Zhang & Jorge Martinez-Vazquez, 2003. "The System of Equalization Transfers in China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0312, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers 98, China Economics and Management Academy, Central University of Finance and Economics.
  12. Li, Jie & Qiu, Larry D. & Sun, Qunyan, 2003. "Interregional protection: Implications of fiscal decentralization and trade liberalization," China Economic Review, Elsevier, vol. 14(3), pages 227-245.
  13. Jorge Martinez-Vazquez & Baoyun Qiao & Shuilin Wang & Heng-fu Zou, 2008. "Expenditure Assignments in China: Challenges and Policy Options, Public Finance," CEMA Working Papers 329, China Economics and Management Academy, Central University of Finance and Economics.
  14. Marc Quintyn & Bernard Laurens & Hassanali Mehran & Tom Nordman, 1996. "Monetary and Exchange System Reforms in China: An Experiment in Gradualism," IMF Occasional Papers 141, International Monetary Fund.
  15. Tao Zhang & Heng-fu Zou, 2001. "Fiscal decentralization, public spending, and economic growth in China," CEMA Working Papers 58, China Economics and Management Academy, Central University of Finance and Economics.
  16. Jonathan A. Rodden & Gunnar S. Eskeland (ed.), 2003. "Fiscal Decentralization and the Challenge of Hard Budget Constraints," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182297.
  17. Jing Jin & Chunli Shen & Qian Wang & Heng-fu Zou, 2012. "Decentralization in China," CEMA Working Papers 546, China Economics and Management Academy, Central University of Finance and Economics.
  18. Ehtisham Ahmad & Li Keping & Raju Jan Singh & Thomas J. Richardson, 2002. "Recentralization in China?," IMF Working Papers 02/168, International Monetary Fund.
  19. International Monetary Fund, 2004. "Toward More Effective Redistribution: Reform Options for Intergovernmental Transfers in China," IMF Working Papers 04/98, International Monetary Fund.
  20. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
  21. Anwar Shah, 2006. "Local Governance in Developing Countries," World Bank Publications, The World Bank, number 7192, 5.
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Citations

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Cited by:
  1. Anping Chen & Nicolaas Groenewold, 2009. "Reducing Regional Disparities in China: An Evaluation of Alternative Policies," Economics Discussion / Working Papers 09-06, The University of Western Australia, Department of Economics.
  2. Wang, Zhiguo & Ma, Liang, 2012. "New Development of Fiscal Decentralization in China," MPRA Paper 36918, University Library of Munich, Germany.

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