| As almost 50% to 80% of China's national revenue and expenditure goes to local governments, it is of great significance to study the local fiscal system in China, a developing country with massive land, large population and varied regions. It is safe to say that the standardization of city-level and county-level fiscal systems will have a direct impact on the tax distribution system of central and local governments. The proper disposal of local fiscal problems will lead to a successful handling of intergovernmental fiscal relationship in China.The reform of tax revenue distribution in 1994 has created a balance between central and provincial fiscal distributions and established a steady growth mechanism of fiscal revenue. With the further development of economy and society, and implementation of fiscal and tax reforms, some problems concerning the city-level and county-level fiscal systems begin to emerge and the fiscal unbalance between different levels and regions become more and more prominent. Some lower-level governments have encountered more fiscal difficulties. Some scholars and officials contribute these problems to the fiscal decentralization which gives more fiscal power to local government and results in low efficiency of using resources and emergence of fiscal unbalance both vertically and horizontally. But this dissertation holds a quite different view. The fiscal decentralization itself should not be blamed for the ongoing problems. It is the incomplete and nonstandard fiscal decentralization that should be held responsible. Therefore we now need to start from China's reality and take the standard theory of fiscal decentralization as guidance for a thorough and deep reform. Only by doing this can we achieve a proper fiscal relationship between the central and local and other regional governments, a consistency between fiscal power and business power,matching of fiscal resource and expenditure responsibility, and the equalization of fundamental public services.Based on the above thoughts, this dissertation takes the fiscal decentralization as its theoretical base and the reform of local fiscal system as intention of research. The author borrows some latest theories and practices of fiscal decentralization in western countries and compares them with China's local fiscal system with the purpose of standardizing and improving our local fiscal system.Firstly the paper elaborates the basic theories of western fiscal decentralization from two aspects, norm analysis and empirical analysis, and makes an evaluation and conclusion. Then it carries a comprehensive description and conclusion of the research on China's fiscal decentralization and different viewpoints based on the relations between fiscal decentralization and economic growth, and the degree of fiscal decentralization.The author uses comparative methods to describe the main trend of western decentralization and analyzes the reforms in U.S. and France. It also compares local fiscal systems in three types of economies, namely the advanced countries, developing countries and countries under economic transition represented by Germany, India and Russia respectively. Then the author puts forward some strength and inspiration China can borrow. The analysis shows that given the differences on business power division, revenue and expenditure arrangement, design of transfer payment, all the countries above, fiscally centralized or relatively decentralized, are building a system of moderate decentralization and centralization, using standardized means of fiscal decentralization to improve the fiscal management system, and moving towards a normal and effective relations between various levels of governments.After analyzing fiscal decentralization and local fiscal systems in western countries, the paper takes a comprehensive analysis and description of China's local fiscal system from three factors. Firstly the author looks back on the historical change of China's local fiscal system from the perspective of fiscal decentralization hoping to find a path dependent of institutional evolution. Secondly the author looks into fiscal systems in provinces, prefectures and cities, counties and towns, and tries to find the relations between provinces and prefectures, between prefectures and counties and between counties and towns. Thirdly the author investigates the process of fiscal system evolution between Shandong Province and Yantai City, between Yantai City and its counties, and between the counties and towns, and finds some valuable methods and achievements. By analyzing the local fiscal systems the author thinks that China's fiscal system has transformed from centralization to decentralization and the reform process is always a non-Pareto improvement, different levels of governments are very "economically rational" and the province-level system usually sets a model for the local fiscal systems.After the comparative analysis of western local fiscal systems and the comprehensive description of China's local fiscal system, the author turns into performance and problem analysis on China's local fiscal system from the norm, empirical and revenue effect angles of fiscal decentralization.(1) Norm analysis of fiscal decentralization. The author thinks that China's fiscal decentralization lacks of realistic foundation, democratic foundation and constitutionalism foundation and at the same time China's fiscal decentralization is not a true "devolution".(2) Empirical analysis of degree of decentralization. The author thinks that even local governments account for higher percentage of national revenue and expenditure, the degree of decentralization in China is far from the norm widely accepted, due to strict constraint and control by the central government on the locals through taxation and expenditure. The author agrees that China is more like a fiscally centralized country. For current China to talk over-decentralization or less-decentralization is a pseudo-problem. The real problem lies in the over-centralization of revenue and over-decentralization of expenditure which has led to the intergovernmental inconsistency of fiscal power and business power, of fiscal resource and expenditure responsibility. This is also the most direct reason to the difficult situation of local finances especially those in counties and towns.(3) Empirical analysis of local intergovernmental decentralization. From the evolution history of fiscal decentralization among governments, we can see the central government has tried all means to centralize fiscal system, which has been mimicked by the provincial governments. Geographically the degree of fiscal centralization improves from the eastern provinces to the western provinces. The degree of centralization or decentralization for prefectures, cities and counties depends on the degree of economic development, land area, number of counties and dividing system of fiscal revenue. (4) Revenue effect analysis of fiscal system. The paper compares the tax distribution system and fiscal contract system and finds that as the major features of the tax distribution system, "expenditure assignment", "tax distribution" and "separate tax administration" made no big differences, or made no substantial development, or did not achieved the expected goal of reform. The author thinks there are two reasons which lead to significant effect of tax distribution system, one is that the power of central and local governments have been strictly controlled and constrained after the reform of tax distribution system; another one or the essential reason is performance evaluation target of different levels of government has moved from GDP to fiscal revenue after the reform of tax distribution and the role of local government has also changed from "helpful hand" under the fiscal contract system of full responsibility to "robbing hand".(5) Existing problems of local fiscal system. There are four problems:unclear border between government and market responsibility, intergovernmental vacancy or offside of business powers; intergovernmental inappropriate allocation of fiscal powers, incapacity of local governments to collect revenue independently; inappropriate structure of transfer payment, unscientific allocation and distribution; lack of legalization and stability of fiscal system.In closing, the dissertation puts forward fundamental principles, general idea and detailed methods to improve the local fiscal system. The fundament principles include:the principle of moderate decentralization, the principle of standard decentralization, the principle of priority decentralization, the principle of democratic decentralization and lawful decentralization. The general idea is to combine tax distribution system with rent-sharing system, to unite fiscal power with business power, to equalize basic public services and develop the fiscal system and administration system together. Finally, the author suggests five detailed methods:(1) Reform the levels of governments and fiscal system, including implementing the reform of "county administrated by province" fiscal system prudently, clarifying the roles of province, city and county, accelerating the city's development while increasing the county's powers, gradually changing the town government into the representative agencies of county government; (2) Further clarify the intergovernmental business powers including redefining the scope of governmental powers, further nailing down the dividing principle of intergovernmental business powers, rationally determining the division of intergovernmental business powers. (3) Properly allocate fiscal powers and revenues among local governments including setting up a system of tax distribution system between province and city, rent-sharing system between city and county. Further restructure fiscal power and revenue distribution among governments and give the local governments borrowing powers; (4) Gradually establish normative transfer payment system including deciding and controlling the scale of transfer payment, selecting ways of transfer payment properly, improving and strengthening general transfer payment, strengthening administration on specific transfer payment; (5) Build a democratic and constitutional fiscal relations among governments, including writing the fiscal decentralization into constitution, pushing forward the democratic reform of local fiscal system and establishing a coordination mechanism among different governments.
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