Central-local Fiscal Relations Research Articles

Rethinking China’s local government debts in the frame of modern money theory

Local government debt is a great threat to China’s financial stability. Local government debt in China is in a dynamic process of financial innovation. The competition of local officials for promotion and the characteristics of China’s fiscal system are the reasons behind the growth in local government debt. The yardstick for the promotion competition is the local GDP growth rate and this drives local officials to increase expenditure to achieve their targets. Because in China’s fiscal system the central government often gives priority to reducing its fiscal deficit and the central government can largely determine the distribution of revenue and expenditure between itself and local governments, there is a tendency for the fiscal burden to be shifted from the central government to the local governments. Resolving China’s local government debt problem requires not only strengthening regulation, but also abandoning the central government’s fiscal balance target, because this target may make regulation hard to sustain in times of economic downturn. This paper discusses central-local fiscal relations in the framework of Modern Money Theory, suggesting that China’s central government should bear more fiscal burden because a central government with currency sovereignty can always afford any spending denominated in its own currency.

New development: China renews reform of central–local fiscal relations and provides for basic national public services

ABSTRACTChina’s reform on central–local fiscal reform has slowed down in recent years. The appointment of a new finance minister experienced in local government affairs is expected to renew the reform affirmed by the Chinese Communist Party (CCP) congress in late 2017. China has unprecedentedly identified a comprehensive list of 81 national basic public services as entitlements. Eighteen of them are subject to national and local standards, and co-financed by central and local governments. A new cost-sharing method for 10 of these services classifies sub-national jurisdictions into five tiers, in which the central government’s share declines from 80% to 10%. These measures, effective in 2019, aim at creating a ‘harmonious and moderately prosperous society’.

New geography of land commodification in Chinese cities: Uneven landscape of urban land development under market reforms and globalization

This study examines the popular practice of land commodification as a means of local revenue generation in Chinese cities and identifies the uneven landscape emerging as a consequence of land-financed urbanization. Land commodification in Chinese cities has generated a revenue of one to three trillion yuan each year equivalent to 40–50 percent of local municipal budgetary revenue. A striking unevenness is observed in the practice of land commodification characterized by a large gap between coastal and inland cities in the generation of land conveyance revenue and an outstanding position held by provincial capital. The importance of land income in municipal budgetary revenue stood out initially in coastal cities and then diffused into the interior. A significant relationship in an inverted-U shape is found between the ratio of land conveyance traded price to municipal budgetary revenue and the level of urban economic growth. Contrary to the popular theoretical perception of a state “hollowing out” to make room for the market under neoliberalization, the Chinese state is found to have reshuffled and transformed itself to embrace and take advantage of the market. Land commodification has not weakened the power of the state but instead strengthened the fiscal capacity of local governments to contest with changes in central-local fiscal relations made in the 1994 “tax sharing system.” The Chinese case is theoretically significant as it sheds important light over the sophisticated state-market relations contingent upon different social, economic, and political conditions and the distinct developmental landscape emerging in a rapidly urbanizing country of the global south in the era of neoliberalization.

Fiscal Federalism: a refined theory and its application in the Chinese context

China's central–local relations have been marked by perpetual changes amidst economic restructuring. Fiscal decentralization on the expenditure side has been paralleled by centralization on the revenue side, accompanied by political centralization. Hence, our understanding of China's fiscal relations is not without controversy. This paper aims to make a theoretical contribution to the ongoing debate on ‘fiscal federalism’ by addressing crucial questions regarding China's central–local fiscal relations: first, to what extent do Chinese central–local fiscal relations conform to fiscal federalism in the Western literature? Second, are there any problems with existing principles of fiscal federalism and, if so, how to refine them? Third, how are refined principles relevant to the Chinese case and what policies should the Chinese government pursue in the future? Based on an in-depth and critical review of the theories on fiscal federalism, we develop a refined prototype of fiscal federalism. The model shows that quasi-traditional fiscal federalism is a much closer reality in China, while we argue that the refined fiscal federalism should be the direction of future reform in China.

Fiscal Decentralization and Revenue/Expenditure Disparities in China

A U. S.-based geographer investigates how decentralization, a central component of China's fiscal reforms in the 1980s and 1990s, has altered the foundation of underlying economic inequalities among its regions. More specifically, the paper examines the evolution of China's fiscal system during the reform era and corresponding changes in the character of central-local fiscal relations. It focuses on analyzing how patterns in regional fiscal disparities at multiple geographic levels have changed over time, laying the groundwork for further research on China's uneven regional development.

With Strings Attached? Improving the Administration of Central State Financed Investment Projects in the PRC

This article takes a new look at the institutional core of China's economic planning—the State Development and Planning Commission (SDPC, 1998–2003)—focusing on its role in approving and fundraising for major capital investment projects. The primary objective of this inquiry is to identify changes in the network structure and procedures of inter-agency relations and central planners’ interactions with national legislators, which have produced a diversity of ‘organizational microclimates’ that shape the coherence of the national economic bureaucracy and central–local fiscal relations. Based on interviews of high-level officials and case studies of investment projects in energy, information technology, and transport sectors, it is argued that administrative reforms aiming to improve SDPC's regulatory capacity have been predicated on a concerted effort by key agencies and ministries under the State Council to reduce the window of opportunity for local and industrial interests to politicize capital allocation decisions. This finding suggests caution in interpreting contemporary China through the comparative lenses of a developmental state, a regulatory state, or a fiscal federalist system.

Between Separate Stoves and a Single Menu: Fiscal Decentralization in China

A recent body of literature with the paradigm of market preserving federalism at its core contends that China is a de facto federalist state. With the autonomy and tax rights of local governments entrenched in the reform era, local governments have allegedly become decentralized engines of growth. Scrutinizing the underlying premises of the above paradigm, this article arrives at a picture of China's local governments as less autonomous and the system of vertical bureaucratic control as more potent than that painted by the above paradigm. Emerging from our findings is an alternative interpretation of China's central–local fiscal relations that may help us understand such recent phenomena as the proliferation of arbitrary charges.

Central-Local Fiscal Relations in Turkey: A Technical Analysis of Fiscal Equalization

This article examines central-local fiscal relations in Turkey in terms of fiscal equalization. Whether or not the revenue sharing system actually results in fiscal equalization is examined. Local tax and expenditure disparities are investigated by using a simultaneous equation analysis. The article concludes that a number of economic and demographic variables explain tax and expenditure differences. The empirical finding confirms that the current revenue sharing system does not take these determinants of local tax and expenditures into account in the allocation of benefits, and therefore this system does not result in fiscal equalization. To enhance fiscal equalization, the significant variables could be entered in the revenue sharing formula with their coefficients as weights.

Reforming China's Institutional Environment for Urban Infrastructure Provision

Rapid urbanisation in the reform period has resulted in a very high demand for basic urban infrastructure in China. Improving its provision by the public sector is a challenge as problems persist in the form of unmet demand, deficiencies in cost recovery and inadequate maintenance. Institutional hurdles, particularly the lack of organisational and financial autonomy for the providers of urban infrastructure, are in part to blame. Urban construction authorities have yet to rid themselves of political interference and overlapping responsibilities. But measures have been taken to reform the institutional environment. Specifically, increasingly decentralised central-local fiscal relations are allowing municipalities an unprecedented degree of freedom for resource mobilisation through a wide range of mechanisms that greatly expand extra-budgetary revenue. A case study of Shanghai's reform efforts shows that results can be immediate and promising.

An Assessment of the Growing Local Economic Development Function of Local Authorities in Russia

AbstractThis paper investigates the increasing local economic development role of the Russian local government by analyzing central forces and local conditions that affect the geographic variation of two types of local government activity in a centrally planned economy: declarations of special economic zone status and declarations of sovereignty. A conceptual framework for explaining increasing local activity is proposed and tested using discriminant analysis. The empirical results largely support the hypothesis that both local conditions and central forces influence local government economic development initiatives. The local conditions measuring the social context and describing the labor force composition and central forces representing central-local fiscal relations differentiate the regional governments choosing particular types of activity from those that did not. The findings indicate that future research should examine in more detail the social and material forces underlying this increasing local ...

Modelling central-local fiscal relations in China

This paper discusses the impact of the lack of credibility of the Chinese central government on localities' revenue collections. The model shows that under the Chinese system, the center's pre-announced revenue-sharing methods are time-inconsistent. Without a mechanism that can force the central government to commit to the pre-announced policy, the localities are tempted to reduce their tax collection efforts. The finding of the model suggests that applying a rule that restricts the center's frequent revision of revenue-sharing methods may help solve the time-inconsistency problem.

Changing Central-Local Relations in China: Reform and State Capacity.

Introduction, Jia Hao and Lin Zhimin. Part 1 Historical perspective and overview: China's central-local relationship - a historical perspective, Zhao Suisheng market and state - changing central-local relations in China, Jia and Wang Mingxia institutional reorganization and its impact on decentralization, Gong Ting and Chen Feng. Part 2 The functional dimension: central-local fiscal politics in China, Wang Shaoguang rural reform and the rise of regionalism, Luo Xiaopeng central-local relations from the perspective of state and non-state industries, Xiao Gang foreign trade decentralization and its impact on central-local relations, Zhang Amei and Zou Gang. Part 3 Regional differentiation and case studies: regional inequality variations and central government policy, 1978-1988, Huo Shitao the case of Guangdong in central-provincial relations, Peter Tsan-yin Cheung reform and Shanghai - changing central-local fiscal relations, Lin.