An Arduous and Difficult Institutional Innovation

Beginning on New Year's Day in 1994, the Chinese government formally inaugurated the implementation of a system of tax sharing between the central government and local governments. This was taken to be one of the most important and wide-ranging institutional innovations in our nation since the founding of the People's Republic, as well as a major adjustment in the configuration of the relationship between the Center and the localities in terms of their relative and mutual interests. This innovation has brought forth widespread interest and concern on the part of all social circles both in China and abroad, over such issues as what sorts of influences [the implementation of] the tax-sharing system over the past two years has had on China's economic growth, on the fiscal revenues and expenditures of the central government, and on the conditions of the fiscal revenues and expenditures of the localities, and how we might objectively and fairly evaluate the effects of this institutional innovation, and so on. The following paper will attempt to provide a preliminary analysis of these problems.