The revolutions in China’s inter-governmental fiscal system

Abstract

There were three periods in the development of China’s inter-governmental fiscal system. In the first period (1950s to 1979), local governments collected tax revenues and remitted upward to the central government. Reforms during the next two periods made revolutionary changes to the system. The tax-sharing system (established in 1994) provides for revenue centralization, spending decentralization, and large central transfers to local governments. This system remains largely in force.

Keywords:

• Chinese fiscal system
• Chinese inter-governmental fiscal system (IFS)
• fiscal decentralization
• tax-sharing system

Acknnowledgements

This research was funded by the Ministry of Education, China; grant number: 13JJD630013.

IMPACT

The study of China’s central–local fiscal relations has become an industry, with so many publications that the picture is now blurred for scholars and practitioners. This paper provides a clear picture by exploring how China has dealt with three central issues from the early 1950s through to the present: how revenue collection is divided between central and local government; how expenditure responsibilities are divided between them; and how surpluses are transferred to other governments or, conversely, deficits are remedied. Three periods are described, with two fiscal revolutions—the introductions of the fiscal contract system in 1980 and the tax-sharing system in 1994—as the milestones. Since the Chinese state has intervened increasingly in the economy under Xi Jingping, and the tax-sharing system has served as one of the most important tools for the intervention, this paper is timely for readers who are interested, and/or have a stake, in China.

Additional information

Notes on contributors

Guang Zhang

Guang Zhang is a Professor in the School of Finance and Economics, University of Sanya, China.