Central Transfer and Fiscal Capacity in China: Evidence from the Tax-Sharing System

Meng Sun and Qichun He

Emerging Markets Finance and Trade, 2018, vol. 54, issue 2, 393-409

Abstract: In 1994, the Chinese government introduced a new fiscal system. Using the provincial panel data during the following period 1995–2010, we find robust evidence that central transfer (measured as the ratio of net central transfer to budgetary expenditure for each province) has a significant, negative effect on the fiscal capacity of a province (the sum of budgetary and extra-budgetary incomes as a percentage of GDP). Therefore, when the central government favors the poor provinces in central transfers (the common pool problem), the rich provinces expand their extra-budgetary income more to avoid predation by the central government, which helps increase the fiscal capacity and thus the market-preserving behavior of the rich provinces. Our result helps explain China’s success, which has strong policy implications for other transitional economies.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/1540496X.2017.1399356 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:54:y:2018:i:2:p:393-409

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MREE20

DOI: 10.1080/1540496X.2017.1399356

Access Statistics for this article

More articles in Emerging Markets Finance and Trade from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().