Deficit Estimation and Welfare Effects after the 1994 Fiscal Reform in China: Evidence from the County Level

Pengfei Zhang and Victor Shih

China & World Economy, 2008, vol. 16, issue 3, 22-39

Abstract: Using simple statistical analysis of county‐level budgetary data from across all of China's counties, the present paper examines whether the post‐1994 fiscal decentralization has affected redistribution at the county‐level. The new fiscal system has been less able to narrow inter‐county dispersion in fiscal imbalances than the old one, even after taking intergovernmental transfer payments into account. Although with the post‐1994 system there has been a modest increase in per capita welfare spending in all counties on average, much of the new‐found fiscal resources have been spent on salary and administrative expenses rather than spending on public goods. Therefore, it is imperative that the reform of China's tax system is intensified.

Date: 2008
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