Is fiscal revenue concentration ratio in China too high?

Hongsheng Fang, Wenjun Shuai, Linhui Yu and Jun Zhang

The World Economy, 2019, vol. 42, issue 7, 1932-1960

Abstract: This paper challenges the viewpoint that fiscal revenue concentration ratio in China is too high. First, this paper estimates China's nominal and real fiscal revenue concentration ratios at both budgetary and full‐calibre levels, and makes an international comparison using all available data of the IMF's GFS database for both developed and developing countries, revealing five stylised facts that expresses serious doubts about the statement that fiscal revenue concentration ratio in China is too high. Second, the paper proposes four indicators to measure asymmetric degree of China's central fiscal revenue concentration ratio and expenditure concentration ratio to identify whether fiscal revenue concentration ratio in China is too high. The results show that: (i) central fiscal revenue concentration ratio is lower and (ii) compared with asymmetric degree of China's central budgetary fiscal revenue concentration ratio and expenditure concentration ratio, asymmetric degree of China's central full‐calibre fiscal revenue concentration ratio and expenditure concentration ratio is more serious, indicating that the central full‐calibre revenue concentration ratio is much lower. Therefore, this paper not only disproves the view that China's fiscal revenue concentration ratio is too high, but also shows that China's fiscal revenue concentration ratio, especially at a full‐calibre level, is much lower. Further international comparison shows that asymmetric degree of China's central fiscal revenue concentration ratio and expenditure concentration ratio is ranked third in the world, and Chinese central government has the lowest ability to undertake full‐calibre fiscal expenditure among the world's countries. Finally, following the State Council's guidance on properly increasing central authority, the paper argues that it is necessary for the central government to improve central fiscal revenue concentration ratio, especially at the full‐calibre level.

Date: 2019
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