Abstract
The decline of the government revenue share in GDP has become a major concern for Chinese policy makers and many economists. This article analyzes the reasons and the consequences of low government budgetary revenue in China. It is argued that lowered corporate tax rates, small tax bases, and tax evasions are the main reasons for the decline of government revenue share in GDP. Low budgetary revenues have resulted in low budgetary expenditures and growing budget deficits, stimulated the expansion of extra‐budgetary and off budgetary revenues, and made the privatization of state enterprises more difficult. This article also discusses policy options for China.
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