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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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    Citations

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    Cited by:

    1. Wang, Zhiguo & Ma, Liang, 2012. "New Development of Fiscal Decentralization in China," MPRA Paper 36918, University Library of Munich, Germany.
    2. Yihua Yu & Jing Wang & Xi Tian, 2016. "Identifying the Flypaper Effect in the Presence of Spatial Dependence: Evidence from Education in China's Counties," Growth and Change, Wiley Blackwell, vol. 47(1), pages 93-110, March.
    3. Peter J. Stauvermann & Ronald R. Kumar, 2015. "The Dilemma of International Capital Tax Competition in the Presence of Public Capital and Endogenous Growth," Annals of Economics and Finance, Society for AEF, pages 255-272.
    4. Chen, Anping & Groenewold, Nicolaas, 2010. "Reducing regional disparities in China: An evaluation of alternative policies," Journal of Comparative Economics, Elsevier, pages 189-198.
    5. Chen, Anping & Groenewold, Nicolaas, 2010. "Reducing regional disparities in China: An evaluation of alternative policies," Journal of Comparative Economics, Elsevier, pages 189-198.
    6. repec:spr:qualqt:v:51:y:2017:i:5:d:10.1007_s11135-016-0386-2 is not listed on IDEAS
    7. Brehm, Stefan, 2013. "Fiscal Incentives, Public Spending, and Productivity – County-Level Evidence from a Chinese Province," World Development, Elsevier, vol. 46(C), pages 92-103.
    8. Pi-Han Tsai, 2016. "Fiscal incentives and political budget cycles in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1030-1073, December.
    9. Anping Chen & Nicolaas Groenewold, 2017. "An increase in the retirement age in China: the regional economic effects," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 702-721, February.
    10. Niraj Prasad Koirala & Dhiroj Prasad Koirala, 2016. "Poverty and Inequality across the Nations: How Can Governments be Effective in Coping?," Economy, Asian Online Journal Publishing Group, pages 24-30.
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    13. Gradstein, Mark, 2017. "Government decentralization as a commitment in non-democracies," Journal of Comparative Economics, Elsevier, pages 110-118.
    14. Jiankun LU & Pi-Han Tsai, 2017. "Signal and Political Accountability: Environmental Petitions in China," Economic Growth Centre Working Paper Series 1711, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    15. Ming Hua Li & Lin Cui & Jiangyong Lu, 2017. "Marketized state ownership and foreign expansion of emerging market multinationals: Leveraging institutional competitive advantages," Asia Pacific Journal of Management, Springer, pages 19-46.
    16. Peter J. Stauvermann & Ronald R. Kumar, 2015. "The Dilemma of International Capital Tax Competition in the Presence of Public Capital and Endogenous Growth," Annals of Economics and Finance, Society for AEF, pages 255-272.
    17. Zhiguo Wang & Liang Ma, 2014. "Fiscal Decentralization in China: A Literature Review," Annals of Economics and Finance, Society for AEF, pages 51-65.
    18. 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.
    19. United Cities and Local Governments, 2011. "Local Government Finance," Books, Edward Elgar Publishing, number 14696, September.
    20. Antonio N. Bojanic, 2016. "Fiscal Decentralization, Economic Freedom, and Political and Civil Liberties in the Americas," Working Papers 1609, Tulane University, Department of Economics.
    21. Yu, Bingxin & Chen, Kevin Z. & Zhang, Yumei & Zhang, Haisen, 2014. "Evolving public expenditure in Chinese agriculture: Definition, pattern, composition, and mechanism:," IFPRI discussion papers 1407, International Food Policy Research Institute (IFPRI).
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    23. Yang, Zhou, 2016. "Tax reform, fiscal decentralization, and regional economic growth: New evidence from China," Economic Modelling, Elsevier, vol. 59(C), pages 520-528.
    24. Changlin Luo, 2014. "Questioning the Soft Budget Constraint," Annals of Economics and Finance, Society for AEF, pages 403-412.

    More about this item

    Keywords

    Fiscal decentralization; Corruption; Financial burden; China;

    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 - Economic Systems - - Capitalist Systems - - - General
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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