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

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  • 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
    Peking University
    Wuhan 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 & Qian Wang & Heng-fu Zou, 2012. "Decentralization in China," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 546, China Economics and Management Academy, Central University of Finance and Economics.
  2. Chunli Shen & Xiaojun Zhao & Heng-fu Zou, 2008. "Fiscal Decentralization and Public Services Provision in China," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 330, China Economics and Management Academy, Central University of Finance and Economics.
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Citations

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Cited by:
  1. Changlin Luo, 2014. "Questioning the Soft Budget Constraint," Annals of Economics and Finance, Society for AEF, Society for AEF, vol. 15(1), pages 403-412, May.
  2. Brehm, Stefan, 2013. "Fiscal Incentives, Public Spending, and Productivity – County-Level Evidence from a Chinese Province," World Development, Elsevier, Elsevier, vol. 46(C), pages 92-103.
  3. Yongzheng Liu & Jorge Martinez-Vazquez & Baoyun Qiao, 2014. "Falling Short: Intergovernmental Transfers in China," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1423, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  4. Anping Chen & Nicolaas Groenewold, 2009. "Reducing Regional Disparities in China: An Evaluation of Alternative Policies," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 09-06, The University of Western Australia, Department of Economics.
  5. Zhiguo Wang & Liang Ma, 2014. "Fiscal Decentralization in China: A Literature Review," Annals of Economics and Finance, Society for AEF, Society for AEF, vol. 15(1), pages 51-65, May.
  6. Zheng, Xinye & Wang, Jing & Li, Xilu & Yu, Yihua, 2013. "On the supply of China's healthcare resources in a decentralized healthcare system," MPRA Paper 56030, University Library of Munich, Germany.
  7. Wang, Zhiguo & Ma, Liang, 2012. "New Development of Fiscal Decentralization in China," MPRA Paper 36918, University Library of Munich, Germany.

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