Fiscal Decentralizaton in the PRC
This policy note provides policy recommendations on reforming expenditure assignments and fiscal transfers, strengthening revenue autonomy, and developing subnational borrowing.
Improved efficiency and effectiveness in the delivery of public services are among the major advantages of fiscal decentralization.
The People’s Republic of China (PRC) undertook two major decentralization reforms, in 1979 and 1994. However, they focused on the revenue side rather than on expenditure assignments. The incomplete reform has led to a mismatch between fiscal revenue and expenditure obligations at the subnational government level. Today, subnational governments in the PRC are responsible for 85% of total expenditures, with less than 54% of the country’s total revenue. Unable to borrow to close the gap, and under pressure to meet the increasing demand for public services, subnational governments have turned to off-budget financing sources, accumulating debt.
The Government of the PRC is committed to implement reforms to build a modern fiscal system that will optimize resource allocation and promote a fair distribution of income. One critical target of the action plan is to provide subnational governments with resources to meet increasing demands for infrastructure and social services as the country moves toward higher income status.
Contents
- Abstract
- Introduction
- Lessons from International Experience
- Current Challenges in Intergovernmental Relations in the PRC
- Policy Recommendations
Additional Details
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