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Intergovernmental fiscal relations in China (English)

The choice of the "right" fiscal relationship between central, provincial, and local governments depends on how a government weighs the benefits of decentralized economic development policies against the costs of having less effective central fiscal management. Three strong forces justify more fiscal centralization in China's highly decentralized fiscal system. First, Bouts of inflation and recurrent fiscal deficits can be seen as calling for more central control over the budget. Second, Reform of an economic system relies heavily on the use of tax policy as an allocative instrument to influence economic decisions. Local control of the implementation of the tax system can and probably has compromised some objectives of the central government's tax policy. Gaining tighter control over the revenue system will probably require reducing if not eliminating local government discretion in providing special tax concessions. Third, if the center wants to move ahead with price reform and to encourage enterprise reform, it needs a more centrally controlled revenue sharing or assignment system that reduces the dislocating effects of such reforms. Bahl and Wallich conclude that a reformed system of intergovernmental finance must meet the center's needs for stabilization and the provinces' needs for revenue and equalized spending capacity, supplemented by an improved system of financing local capital expenditures through borrowing, a system of benefit charges and improved planning.

Details

  • Author

    Bahl, Roy W. Wallich, Christine

  • Document Date

    1992/02/29

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS863

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    China,

  • Region

    East Asia and Pacific,

  • Disclosure Date

    2010/07/01

  • Doc Name

    Intergovernmental fiscal relations in China

  • Keywords

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Citation

Bahl, Roy W. Wallich, Christine

Intergovernmental fiscal relations in China (English). Policy, Research working papers ; no. WPS 863. Public economics Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/508111468769788136/Intergovernmental-fiscal-relations-in-China