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Fiscal federalism in big developing countries: China and India

  • Fraschini, Angela

    ()

In South and East Asian countries a highly centralized government prevails, although recently some trends are moving toward a greater degree of decentralization. Also the two giants China and India, which cannot rely on a merely centralized Government, have experienced a greater or lesser degree of fiscal unionism. As to China the local government system provides four levels: provincial level; city level; county level; township level. Intergovernmental fiscal relations were revamped by the 1994 reform that established a new tax sharing system and gave local governments more control over the administration of local taxes but no significant degree of tax autonomy and no substantial expenditure assignments. The local financial revenue mainly derives from local taxes, shared taxes, and nontax revenue. As to India, the federal system is quite complex. The center-states relations are envisaged in the Constitution also for the financial aspects: two constitutional amendments adopted in 1992 made India one of the most politically decentralized countries among developing ones. However, the implementation of the decentralization program is still lagging: till now India seems to have considered decentralization mainly in terms of the local election system, without the transfer of all functions provided for devolution to local bodies. Only India set up a different system of local bodies in rural and urban areas with different expenditure responsibilities and financing powers. On the contrary, China has a unitary fiscal system. In India it is necessary to redesign the transfer system to improve accountability, incentives and equity, whereas in China, the fiscal revenue sharing schemes limit intergovernmental budget transfers. Finally, the rule of hard budget constraint in China is faced by all levels of government, while in India sub-national governments face soft budget constraint.

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File URL: http://polis.unipmn.it/pubbl/RePEc/uca/ucapdv/fraschini66.pdf
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Paper provided by Institute of Public Policy and Public Choice - POLIS in its series POLIS Working Papers with number 60.

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Length: 37 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:uca:ucapdv:60
Contact details of provider: Web page: http://polis.unipmn.it

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  1. Roy Bahl, 1999. "Implementation Rules For Fiscal Decentralization," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9803, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Olivier Blanchard & Andrei Shleifer, 2000. "Federalism with and without Political Centralization: China versus Russia," NBER Working Papers 7616, National Bureau of Economic Research, Inc.
  3. Jonathan A. Rodden & Gunnar S. Eskeland (ed.), 2003. "Fiscal Decentralization and the Challenge of Hard Budget Constraints," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182297, June.
  4. Nirvikar Singh, 2004. "India’s System of Intergovernmental Fiscal Relations∗," Public Economics 0412006, EconWPA.
  5. Raju Jan Singh & Ben Lockwood & Ehtisham Ahmad, 2004. "Taxation Reforms and Changes in Revenue Assignments in China," IMF Working Papers 04/125, International Monetary Fund.
  6. Ghosh, Buddhadeb & De, Prabir, 2005. "Investigating the linkage between infrastructure and regional development in India: era of planning to globalisation," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1023-1050, January.
  7. Francois Vaillancourt & Richard M.Bird, 2004. "Expenditure-Based Equalization Transfers," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0410, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Catriona Purfield, 2004. "The Decentralization Dilemma in India," IMF Working Papers 04/32, International Monetary Fund.
  9. Ehtisham Ahmad & Li Keping & Raju Jan Singh & Thomas J. Richardson, 2002. "Recentralization in China?," IMF Working Papers 02/168, International Monetary Fund.
  10. Zhihua Zhang & Jorge Martinez-Vazquez, 2003. "The System of Equalization Transfers in China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0312, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  12. Jing Jin & Heng-fu Zou, 2003. "Soft Budget Constraints on Local Government in China," CEMA Working Papers 132, China Economics and Management Academy, Central University of Finance and Economics.
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