CHINA DECENTRALIZATION FINANCE ISSUES: LESSONS FROM INTERNATIONAL EXPERIENCE

Abstract

The current system of fiscal decentralization in China has a number of serious problems. Whereas it has clearly assigned revenues between the central government and provincial governments, the current system does not provide clear expenditure assignments for almost all levels of governments. In practice, the widely unfunded responsibilities have been taken up by local governments, in particular, by the governments at and under county level. Since 1994, the responsibilities for these local governments have continued to expand. On the other hand, the “tax sharing reform” of 1994 led to a very limited tax bases for local governments. In fact, a significant amount of local governments in China face serious fiscal crisis.