Reform of the intergovernmental transfer system in China

In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this systemto overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.Intergovernmental Fiscal Relations and Local Finance Management,Regional Governance,Public&Municipal Finance,Urban Economics,Public Sector Management and Reform

China: Regional Disparities In Poverty Distribution

China's remarkable poverty alleviation is quite uneven across regions in the last quarter of the century. It is important to explore why China has such huge disparity in poverty distribution in spite of overall dramatic economic growth and the vast improvement in per capita income. The aim of this paper is to fill the literature gap by focusing exclusively on the issue of regional disparities in poverty distribution in China. It finds an increasing concentration of the rural poor in south-western provinces and the urban poor in northern China. Behind the scene, political choices and public polices, particularly barriers restricting the flow of labor, and fiscal rules that provides the disadvantaged population and regions less access to the fruits of division of labour, have a critical impact on how the effects of endowment and geography play out in the country's poverty distribution. In efforts to fight against skewed poverty concentration and build a harmonious society, further policy actions are required to promote agricultural development and off-farm employment, enhance infrastructure investment in poor regions, lower fiscal disparities and promote equitable public services provision, and address the regressive inter-governmental fiscal system.

Bridging Fiscal Divergence in China

This dissertation asks, from the fiscal perspective, whether the Chinese government has been effective in moving towards a more equitable development strategy. It seeks to answer this question through an in-depth examination of China's intergovernmental fiscal system with respect to the following three aspects: public expenditure policies, fiscal inequality, and the intergovernmental fiscal transfer system. Chapter 1 aims to provide a comprehensive review of China's experience in fiscal decentralization. It examines the system of central control in the pre-reform period of 1949 to 1978; the fiscal contracting system, which resulted from a series of ad hoc decentralization reforms between 1979 and 1993; and the single most important intergovernmental fiscal reform, that of 1994. Following a thorough history and background knowledge of China's fiscal system in Chapter 1, Chapter 2 provides an institutional analysis of China's public expenditure policies by looking into the following three areas, expenditure assignment, expenditure composition and local accountability. This chapter tries to answer the question of whether China's public expenditure management serves the objective of adequate and equitable public services provision. Chapter 3 examines fiscal inequality at the provincial, prefectural, and county levels of government. Where data are available, the spending inequality on core public services is also explored. There is also a comparison of fiscal inequality at the provincial, prefectural, and county levels. With Chinese leaders and citizens expressing increasing concern at the regional inequalities that have accompanied China's rapid growth, the question of the redistributive effectiveness of the intergovernmental transfer system has become more and more important. The distribution of fiscal resources is taking the center stage in policy debates because the poorest regions may not be financially equipped to provide the most basic public services, such as education and health care, at the national average levels. The intergovernmental transfer system could ease fiscal disparities by equalizing fiscal capacity across regions. Chapter 4 conducts a comprehensive evaluation of the redistributive effects of the intergovernmental transfer system, at both the provincial and the county levels

Local Government Tax Effort in China: an Analysis of Provincial Tax Performance

This paper aims to enhance the understanding of provincial tax performance in China, paying special attention to the recent fiscal reforms in the 1980s and in 1994. Using provincial panel data for the period 1986-2004, our analysis consists of two steps. First, a combined fixed time effects and random provincial effects model is used to analyze the statistical relationship between the tax share in GDP and economic and demographic variables. Results indicate that the decentralized fiscal system over the period 1986¨C1993 has had a positive impact on the tax share in GDP, whereas the recentralized fiscal system in the period 1994-2004 has had a negative impact. Second, provincial tax effort indices are calculated to estimate potential room for additional taxation. The findings from the analysis have important policy implications on the redistribution of fiscal resources as well as on the effectiveness of the tax administration.Tax effort, Tax capacity, Fiscal reforms, Fiscal decentralization

Health Care System Reform in China: Issues, Challenges and Options

This paper examines health care reform in urban and rural China. Before health care reform, Chinese health service facilities were run entirely by the state and basically they performed a social welfare function. This health care system greatly improved the population health conditions but many problems started to emerge in 1980s when the economic reform started. Since then, the government has been struggling to maintain a balance between meeting people¡¯s health care needs and develop the health care "industry". Problems and their contribution factors in organization, financing and performance of the health care reform are examined and analyzed. In terms of organization, decentralization of the decision making power in health sector and marketization of the medical establishments constitutes the main organizational changes in the health care reform. This organizational reform of health sector as an imposed institution change, encounters lots of resistance in the process of implementation. A tremendous amount of conflictions arises because of the commercialization of health sector that used to perform social welfare function. In terms of financing, share of organized financing (government and social fund) in the total health expenditure declined dramatically since the reform. In urban China, Health care insurance faced tough going on universal access. In rural China, there are lots of problems in implementing new cooperative health system partly because of its imperfect design. In terms of performance, data shows that there is growing inequity in health status between rural and urban in the past 15 years. Inefficiencies also exists in both resource allocation and service delivery. Several options are analyzed for organizational reform and health care financing. The report recommends that the aims of the future reform policy that government would adopt should be to improve the population health status instead of generating profit for institutions or industry. The social welfare function of health care system should be reinforced and at the same time managed competition in the health care market should be encouraged. In health care financing in urban area, several directions of broadening risk pooling are discussed. In rural health care financing, the designing of new cooperative health care system is analyzed. Rural financing should be more flexible in order to attract more people to join the cooperative medical system. It is recommended that Chinese government should increase funding for public health programs and subsidize health services for the disadvantaged groups.

Fiscal Decentralization and Peasants' Financial Burden in China

This paper sheds light on the heavy financial burden on peasants in China's fiscal decentralization system. Using a political economy framework, this paper explores the tax-farming nature of China's fiscally decentralized system and examines why the system incurs a particularly heavy financial burden on peasants. Specifically, it points out that a political hierarchy financed by a tax-farming system in China, fails to contain the exploitative behavior of local officials, which results in the expenditure devolution and revenue centralization within the hierarchy. Ultimately, peasants bear the brunt of the tax burden. As the financial pressure of excessive levies and fees reaches a perilous point, peasants are resorting to violent protests. Unless a fiscally decentralized system with horizontal accountability mechanisms evolves, the country's ability to sustain a centralized polity may become increasingly undermined. A case study of township finance is used to exemplify the exploitative nature of China's fiscal decentralization system.Fiscal Decentralization, Corruption, Financial Burden, China

Water Service Delivery Reform in China: Safeguarding the Interests of the Poor

China faces a water scarcity problem that is severe by international standards. Many factors, including rapid urbanization and environmental degradation etc, have been challenging the water service delivery in China. Since water scarcity and quality have impact on the poor, reforms to the water service provision can produce substantial improvements in the living standard of the economically disadvantaged groups. The objective of this study is to critically evaluate the strengths and weakness of China¡¯s current water financing and delivering system, with a focus on safeguarding the interests of the poor, and to offer insight into possible solutions.water administration, water pricing, water financing

Evaluation of Land Taxation in China

The emerging land-related unrest in China poses a pressing challenge on the legitimacy of the government. Through the perspective of good governance, the paper examines the role of land in government financing and its economic and political cost, as well as the erosion of government's credibility and its negative impact on private and collective property rights. The paper emphasizes the recent upward trend in land-related unrest as a consequence of abuses by local governments on land-source revenues. Our special concern rests on the institution of collective property which is slowly emerging from the shadow of the former state property in the course of economic transition. Collective property right could be a useful legal and economic institution but must receive political support to exist alongside with private property.Land tax, Property tax, Land-related revenue, Land administration