Turn To The Structure Of Public Spending Choice

There are two alternative models for a fiscal system: public finance and comprehensive finance. This is clear from both the trend in the economic literatures and the evolution of the fiscal structure in China in the last twenty years. Comprehensive finance is a derivative of socialist planning economy. It is a major representation of how planning leads everything else. Under governmental planning! governmental revenues and expenditures are the same as the national revenues and expenditures. Functions of the fiscal system includes almost all revenues and expenditures activities in the whole society.In a market economy, however, public finance is basically a redistributional device that use tax revenues to satisfy public demand. A government in a market economy redistributes tax revenues based on public needs among social entities, including the government itself, according to some political and economical principles. The basic goal of in a public finance system is public need, and fiscal expenditure is mainly only for public need. To accelerate the formation of the socialist market economy in our country, the current top priority in reforming our the finance system is to establish new theory of governmental finance and accelerate the transition from comprehensive finance to public finance.The paper attempts to answer the following questions: First, what are the major problems in the expenditure composition in a comprehensive finance? Why is the reform of expenditure is the key step in the transition to public finance from comprehensive finance? Second, What are the theoretical foundation and target model for the reform of the expenditure programs in a comprehensive finance? Third, what arc the themes, methods, steps, and necessary policy environments for the reform of expenditure programs? Chapter 1 and 2 answer the first question. We systematically review the content, characteristics, and historical development of comprehensive finance.Using extensive data analysis and comparisons, we conclude several problems in comprehensive finance, such as excessive spending on competitive sectors of the economy, fast growth of governmental administrative costs, inadequate expenditures on social security, national defense and education. Ifc discuss the importance of reform of expenditure structure on reducing fiscal burden, regulating revenue collection, and restoring' the fiscal functions. We point out that there should be a fundamental change in the fiscal reform to establish a socialist public finance system based on public needs by changing the governmental financial expenditures.Chapter 3 and 4 focus on the second problem. We formulate the three competing theories and four principles of public expenditures as the theoretical foundation of fiscal reform. The efficiency theory, social equity theory, and stability theory shows the necessarily and superiority of public need-based fiscal expenditures undersocialist market economy. The four principles arc: Correcting market failures, emphasizing social efficiency, ensuring social equity, and balancing public and private sectors. They will help control ling the overall direct ion and extent of public expenditures in different periods, and promote the efficiency and equity fiscal investments.We analyze and compare several competing forms of public finance, including welfare state model, government dominance model, the suitable intervention model, and show that the only meaningful type of social equity is equity with efficiency, excessive emphasis on social equity and social welfare leads to free-rider' problem and harms efficiency.However , emphasizing efficiency does not imply extensive governmental intervention. A government's top priority must focus on creating and supporting market to increase economic efficiency, and find an appropriate combination of the role for the market and for the government to improve its effectiveness and efficiency of intervention. We discuss the applications of these results further to show that the public finance model in China...