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Fiscal decentralization and political centralization in China

  • Ziang, Xiaobo
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    "While, politically speaking, China has a centralized government structure with strong top-down mandates, under the country’s current fiscal system, local governments are responsible for providing most local public goods and services. Large differences in economic structures and revenue bases exist, however, causing the implicit tax rate and fiscal burdens in support of local government functions to vary significantly across jurisdictions. Regions initially endowed with a broader nonfarm tax base do not need to rely heavily on new and existing firms to finance public goods provision, which creates a healthy investment environment in support of nonfarm sector growth. In contrast, local governments in regions where agriculture is the major economic activity spend the majority of their resources on their own operating costs, leaving little for public investment. Because of the relatively high transaction costs associated with collecting taxes from the agricultural sector, local governments tend to levy the existing nonfarm sector heavily, thereby greatly inhibiting its growth. As a result, regional differences in economic structures and fiscal dependent burdens may translate into widening gaps in equality. " Authors' Abstract

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    Paper provided by International Food Policy Research Institute (IFPRI) in its series DSGD discussion papers with number 21.

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    Date of creation: 2005
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    Handle: RePEc:fpr:dsgddp:21
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    1. Fan, Shenggen & Zhang, Linxiu & Zhang, Xiaobo, 2004. "Reforms, Investment, and Poverty in Rural China," Economic Development and Cultural Change, University of Chicago Press, vol. 52(2), pages 395-421, January.
    2. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
    3. Zhang, Xiaobo & Fan, Shenggen, 2004. "Public investment and regional inequality in rural China," Agricultural Economics, Blackwell, vol. 30(2), pages 89-100, March.
    4. Ravi Kanbur & Xiaobo Zhang, 2004. "Fifty Years of Regional Inequality in China: A Journey Through Central Planning, Reform and Openness," Working Papers 158, Institute for Social and Economic Change, Bangalore.
    5. Tao Zhang & Heng-fu Zou, 2001. "Fiscal decentralization, public spending, and economic growth in China," CEMA Working Papers 58, China Economics and Management Academy, Central University of Finance and Economics.
    6. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
    7. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-62, December.
    8. Zhang, Xiaobo & Mount, Tim D. & Boisvert, Richard N., 2000. "Industrialization, urbanization, and land use in China:," EPTD discussion papers 58, International Food Policy Research Institute (IFPRI).
    9. West, Loraine A & Wong, Christine P W, 1995. "Fiscal Decentralization and Growing Regional Disparities in Rural China: Some Evidence in the Provision of Social Services," Oxford Review of Economic Policy, Oxford University Press, vol. 11(4), pages 70-84, Winter.
    10. John Knight & Li Shi, 1999. "Fiscal decentralization: Incentives, redistribution and reform in China," Oxford Development Studies, Taylor & Francis Journals, vol. 27(1), pages 5-32.
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