Equalization through the People’s Republic of China’s Intergovernmental Fiscal System: The Effectiveness of Central and Provincial Transfers

Xiao Tan and Ying Tan ()
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Xiao Tan: Centre for Contemporary Chinese Studies, University of Melbourne, Australia
Ying Tan: University of Melbourne, Australia

Asian Development Review (ADR), 2024, vol. 41, issue 01, 227-261

Abstract: The People’s Republic of China’s (PRC) fiscal system is characterized by very high expenditure decentralization and heavy reliance on transfers to finance public services. The government’s embrace of inclusiveness and equalization as national goals has raised questions about whether transfers can deliver equalization. This paper seeks to answer this question by analyzing newly available fiscal data compiled from government websites. We find the allocation of central transfers remains strongly region based, resulting in high intra-regional inequality among provinces. Poorer provinces also tend to retain more central transfers at their own (provincial) level. Those provinces with greater pretransfer inequality tend to exert greater equalization efforts, but these are not necessarily proportional to their pretransfer inequality. As a result, some localities are left out of the PRC’s countrywide equalization program. These equalization patterns remained highly persistent during the coronavirus disease shock in 2020. Collectively, the findings highlight that the PRC’s complex intergovernmental fiscal system still poses challenges for equalization.

Keywords: equalization; intergovernmental fiscal system; intergovernmental transfers; People’s Republic of China; regional inequality (search for similar items in EconPapers)
JEL-codes: E62 H11 H77 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S011611052450001X

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