Fiscal Centralization and Decentralization in Russia and China
AbstractIn this paper we review the fiscal evolution of China and Russia, asking how the process of creating a separate, tax-financed public sector in the two countries differed. We observe that the size of China's budget sector was consistently smaller than in Russia and that budget decentralization was consistently greater. We see both pros and cons in China's decentralization. Local governments that were allowed to keep marginal increases in local tax revenue had incentives to pursue growth-supporting policies, including support for foreign investment and export-oriented production. However, in the absence of financial markets, there were barriers to investment outside the local region, resulting in inefficient use of capital and protectionism. Fiscal deficits and rapid expansion of credit have threatened stability in both countries, but China has proved more successful than Russia in managing macroeconomic policies. Finally, we argue that Russia's status as a petro-state makes management of the public sector particularly difficult. In Russia, recentralization has been associated with expansion of state ownership of enterprises and production by territorial governments, state ministries, state banks, and the natural monopolies.
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Bibliographic InfoPaper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 06-013.
Length: 47 pages
Date of creation: Dec 2006
Date of revision:
Fiscal decentralization; Russia; China; regional growth;
Other versions of this item:
- Elliott Parker & Judith Thornton, 2007. "Fiscal Centralisation and Decentralisation in Russia and China," Comparative Economic Studies, Palgrave Macmillan, vol. 49(4), pages 514-542, December.
- H6 - Public Economics - - National Budget, Deficit, and Debt
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- P35 - Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-CIS-2007-01-14 (Confederation of Independent States)
- NEP-CNA-2007-01-14 (China)
- NEP-PBE-2007-01-14 (Public Economics)
- NEP-SEA-2007-01-14 (South East Asia)
- NEP-TRA-2007-01-14 (Transition Economics)
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