Fiscal Reform and Rural Public Finance in China

Abstract

We present a summary analysis of the important changes in township and village finance in China between 2000 and 2004, based on a survey of 100 villages in 50 townships in 25 counties in five provinces. The reforms included the elimination of regular fee assessments imposed on rural households and the removal of the long-standing agricultural tax as well as increased investment efforts by upper-level governments in the rural sector. This “Tax-and-Fee reduction” was popular in rural China but it is too soon to say what the long-term effects of this policy might be. However, the analysis reported here shows clearly that by most measures and for most areas the initial effects on the fiscal health of townships and villages are mixed. One clearly beneficial effect of the increased centralization reflected in this package of reforms was that relatively more resources have been directed to poor rural areas. However, the evidence we present suggests that such investment would have had a bigger payoff had there been larger direct village input into infrastructure projects.