China’s Local-Central Intergovernmental Fiscal Relations

Abstract: For a large country like China, the handling of intergovernmental fiscal relations must create compatible incentives to central and local governments. China initially created a fiscal management system characterized by tax sharing in 1994, basically meeting the needs of its socialist market economic system. Yet further improvements must be made to the assignment of administrative authority and expenditure responsibilities, revenue allocation and the fiscal transfer payment system. In handling intergovernmental fiscal relations, great attention must be given to the system’s stability to give play to its function of incentives and restraints. China must create a hierarchical fiscal management system in line with its modern fiscal system. According to the requirements of this system, China should further standardize the division between administrative authority and expenditure responsibilities, standardize the division of government revenues, formalize a fiscal transfer payment system, and develop a hierarchical fiscal management system encompassing the sharing of tax, rents and profits.

Key words: fiscal management from a large country perspective, intergovernmental fiscal relations, fiscal system

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