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Fiscal Decentralization and Peasants' Financial Burden in China

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Author Info

  • Jing Jin

    (Central University of Finance and Economics)

  • Chunli Shen

    (University of Maryland, College Park)

  • Heng-fu Zou

    (Central University of Finance and Ecnomics
    Shengzhen University
    Peking University
    Wuhan University)

Abstract

This paper sheds light on the heavy financial burden on peasants in China's fiscal decentralization system. Using a political economy framework, this paper explores the tax-farming nature of China's fiscally decentralized system and examines why the system incurs a particularly heavy financial burden on peasants. Specifically, it points out that a political hierarchy financed by a tax-farming system in China, fails to contain the exploitative behavior of local officials, which results in the expenditure devolution and revenue centralization within the hierarchy. Ultimately, peasants bear the brunt of the tax burden. As the financial pressure of excessive levies and fees reaches a perilous point, peasants are resorting to violent protests. Unless a fiscally decentralized system with horizontal accountability mechanisms evolves, the country's ability to sustain a centralized polity may become increasingly undermined. A case study of township finance is used to exemplify the exploitative nature of China's fiscal decentralization system.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 490.

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Length: 55 pages
Date of creation: 2011
Date of revision:
Publication status: Published in Annals of Economics and Finance, May 2012, pages 59-95
Handle: RePEc:cuf:wpaper:490

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Web page: http://cema.cufe.edu.cn/
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Keywords: Fiscal Decentralization; Corruption; Financial Burden; China;

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  1. Francesca Fornasari & Steven B. Webb & Heng-fu Zou, 2000. "The Macroeconomic Impact of Decentralized Spending and Deficits: International Evidence," Annals of Economics and Finance, Society for AEF, vol. 1(2), pages 403-433, November.
  2. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  3. Jan K. Brueckner, 2000. "Fiscal Decentralization in Developing Countries: The Effects of Local Corruption and Tax Evasion," Annals of Economics and Finance, Society for AEF, vol. 1(1), pages 1-18, May.
  4. Wildavsky, Aaron, 1985. "A cultural theory of expenditure growth and (Un)balanced budgets," Journal of Public Economics, Elsevier, vol. 28(3), pages 349-357, December.
  5. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
  6. Yin Heng, 2008. "Fiscal Disparities and the Equalization Effects of Fiscal Transfers at the County Level in China," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 115-149, May.
  7. Peter Stella, 1993. "Tax Farming: A Radical Solution for Developing Country Tax Problems?," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 217-225, March.
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Cited by:
  1. Richard M. Bird, 2006. "Taxing Land and Property in Emerging Economies: Raising Revenue...and More?," International Tax Program Papers 0605, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  2. Chunli Shen & Jing Jin & Heng-fu Zou, 2012. "Fiscal Decentralization in China: History, Impact, Challenges and Next Steps," Annals of Economics and Finance, Society for AEF, vol. 13(1), pages 1-51, May.
  3. Wang, Zhiguo & Ma, Liang, 2012. "New Development of Fiscal Decentralization in China," MPRA Paper 36918, University Library of Munich, Germany.
  4. Zhiguo Wang & Liang Ma, 2014. "Fiscal Decentralization in China: A Literature Review," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 51-65, May.

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