Fiscal Decentralization, Financial Decentralization and Macroeconomic Governance

He Dexu(何德旭)1* and Miao Wenlong (苗文龙)2

1 Business School, University of the Chinese Academy of Social Sciences (UCASS), Beijing, China

2 International Business School, Shaanxi Normal University, Xi’an, China

Abstract: Improvement of the macroeconomic governance system as an important partof the national governance system is a key initiative to address major economic problemsin the new era. The coordination and economic regulatory effects of fiscal and monetarypolicies are subject to the arrangements of fiscal and financial decentralization systems.Analysis revealed a mismatch between China’s fiscal income decentralization and fiscalspending decentralization, as manifested in the clear decentralization of fiscal revenueand vague decentralization of fiscal spending; in pursuing local economic stability,local governments seek other sources of revenue and compete for financial resources, asmanifested in apparent financial centralization and implicit financial decentralization,causing financial decentralization to be inconsistent between various levels of governmentand between government and the market. The above-mentioned problems are reflected inmutual conversion between public finance and financial intermediation as two financialallocation methods and mutual transmission between fiscal and financial risks, makingthe case for enhancing coordination between fiscal and monetary policies. In creatinga scientific macroeconomic governance system, therefore, we must establish clear localgovernment responsibilities, reduce the proportion of local fiscal spending, clarify theorientations and relief boundary of fiscal and monetary policies, moderately decentralizefinancial powers, and give better play to the role of local governments in improving thequality of economic development and controlling major risks.

Keywords: fiscal decentralization, financial decentralization, macroeconomic governance

JEL Classification Codes: E65, P34

DOI: 10.19602/j.chinaeconomist.2022.01.07