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Fiscal Decentralization and Peasants' Financial Burden in China

  • Jing Jin

    (Central University of Finance and Economics)

  • Chunli Shen

    (University of Maryland)

  • Heng-fu Zou

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

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

Volume (Year): 13 (2012)
Issue (Month): 1 (May)
Pages: 53-90

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Handle: RePEc:cuf:journl:y:2012:v:13:i:1:jinshenzou
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  1. 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.
  2. 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.
  3. repec:cup:cbooks:9780521233293 is not listed on IDEAS
  4. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  5. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
  6. Jan K. Brueckner, 1999. "Fiscal Decentralization in Developing Countries: The Effects of Local Corruption and Tax Evasion," CEMA Working Papers 1, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2000.
  7. 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.
  8. repec:cup:cbooks:9780521027922 is not listed on IDEAS
  9. 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.
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