China’s Central-Local Government Relationship from the Fiscal System Perspective

Ren Xiao-Chun ,Lingguang Meng

doi:10.11648/j.jppa.20200404.13

Abstract

Different fiscal systems may shape different relationships of the central-local government. The transition of the fiscal system is an important perspective to interpret the changes of the relationship between the central and local governments. From the perspective of historical institutionalism, this paper analyzes the changes of China’s fiscal system and the corresponding central-local relationship since the founding of the People’s Republic of China. Since 1949, China’s fiscal administration system has undergone a continuous change process: the fiscal system characterized by “unified revenue and unified expenditure” in the prime of the founding of China, the fiscal system characterized by “fiscal responsibility” in 1980s (the reform and opening-up) and the fiscal system characterized by the tax-sharing system gradually improved. Accordingly, with the evolution of the fiscal system, the central-local relationship characterized by “centralization of authority”, “decentralization and profit sharing” and “grant decision in economy” have been formed respectively. In view of the above, the conclusion is drawn: with the constant reform of the fiscal system, the relationship between the central and local governments is gradually moving from “‘control’ and ‘being controlled’” towards “synergy and cooperation” in China. Finally, they will achieve a benign development.

Highlights

Different fiscal systems may shape different relationships of the central-local government
Its reform and remolding will become an unavoidable proposition on the way to explore the great country governance in the new era.”
[1] The reform of different fiscal systems inevitably results in different central-local government relationships

Summary

Introduction

“The fiscal system affects the economy and development, but it is the key to effective governance. In 2013, China took “establishing a modern financial system” as the goal and positioned finance at a special height of “the foundation and important pillar of the national governance”, which had an important effect on the central-local relationship. From cybernetics’ perspective, these research results believed that the reform of the fiscal system is a political control means adjusting the central-local government relationship, and its purpose is to realize the effective control over local governments through adjusting the fiscal system. With the gradual change of the system and the development of the modernization of the national governance system, the central-local relationship change will have a new definition. The purpose of this paper is to find a new perspective researching the fiscal system changes and the central-local government relationship. The “Unified Revenue and Unified Expenditure” with the “Centralization of Authority” (1949-1979)

The Fiscal System Characterized by “Unified Revenue and Unified Expenditure”

The Fiscal System Characterized by the “Fiscal Responsibility System”

The Tax-sharing System

The Central Government and Local Governments Under the Tax-sharing System

Conclusion