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

Author

Listed:
  • 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.

Suggested Citation

  • 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.
  • Handle: RePEc:cuf:journl:y:2012:v:13:i:1:n:1
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal decentralization; Corruption; Financial burden; China;
    All these keywords.

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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