A Study Of Finance Of Compulsory Education In Rural China Since The 1994 Tax-sharing Reform

China has failed to reach the target of the finance input for education as 4% of GDP for 17 years since the target was raised. Rural education has been faced up to lots of problems. The growth of rural compulsory education input stays sluggish. Extra-budget revenue still makes a big part of the input for rural education. And rural compulsory education input stays uneven among provinces. This paper attempts to explain those problems by arguing that it is because education is marginalized in public budgeting for its marginalized position in the incentive system for Chinese local officials, and rural compulsory education is more marginalized. Leaders of local government, especially county government, have great impact on the expenditure decision in the budget system of local government with inevitably results that the distribution of local financial rescores are always affected by the preferences of a few local leaders. Meanwhile, under the 'top-bottom' intergovernmental Principal-Agent Relations, the commons and the conflicts coexist between the utility function of central and local government. The commons are based on the centralized promotion Incentive of China that arouses local government's enthusiasm of developing economy. While the survival condition if the conflicts come from fiscal decentralization system and inefficient supervision mechanisms. The former gives local government decision autonomy for spending, and the later help local government become monopolist of government information. Developing education is one of the conflicted utility goals between central and local government. And education has been taken as one of the duties of the multi-duty contract of authority, rather than one of the incentive performances. As a result, ceiling effect always exists in the financial actions for education. It means that local government would not increase the input for education if the education spending has been reached to some amount.The marginal position of education is revealed by statistical analyses as well. It shows that the share of education in local expenditure has been decreasing. Although transfers and fiscal decentralization are useful in restraining the dependence on extra-budget income for education, the new revenue and transfers of local government would not be spent for education. However, intergovernmental fiscal relations make some difference to the marginalized position of education. There are four types of "central-local" fiscal arrangements, which present for four kinds of combination of the intervention of central government and the sub-provincial fiscal decentralization in local governments. Transfers have crowding-out effect on rural education input in both Zhejiang province with 'weak central government intervention, strong sub-provincial fiscal decentralization' and Heilongjiang province with 'strong central government intervention, weak sub-provincial fiscal decentralization'. Earmarked transfers have crowding-out effect on rural education input, while controllable transfers have substitution effect on rural education input, in both inter Mongolia autonomous region with 'strong central government intervention, strong sub-provincial fiscal decentralization' and Guangdong province with 'weak central government intervention, weak sub-provincial fiscal decentralization'. But both transfers and fiscal decentralization could reduce the ratio of extra-budget input in rural education. Generally speaking, compared with Guangdong and inter Mongolia, Zhejiang and Heilongjiang local governments have more negative attitude to rural education. Besides, there are other factors that restricted rural compulsory education development.'Economies of scale' doesn't exist in rural education. Educational administrative department have strong motivation to collect fees from rural schools. And the self-serving behaviors of schoolmasters decrease the efficiency of rural education. Aside from establishing the mechanism of education input in central and provincial government, much more attention should be taken to setting up reasonable relation among the government, educational administrative department, and schools.