The Public Goods Provision In Rural China-A Study Based On Township Finance

Construction of New socialism countryside is a major strategic task in economic and social development at present and in a coming period in China. There exists wide gap between urban and rural areas in China, where highly developed cities coexist with remote and poor countryside. In many areas, the rural economy grows slowly, the farmer's income stagnates, the infrastructure in rural areas is very poor, and the township financial resources are limited. The difference in public good provision reflects the non-homogeneous development between urban areas and rural areas. The most important and difficult task to construct new socialism countryside is to increase the provision of public goods and services in rural China. So, the significance of guaranteeing the effective provision of public goods in rural China is not only for homogenous development but also for realizing the aim of building a well-off society. The overall goal of this study is to explore how to improve the provision of public goods in rural China based on township fiscal reform. In order to do this, this paper employed both qualitative and quantitative methods.The paper includes 8 chapters. In Chapter 1, a brief introduction of the background, purpose, and outline of this study are given. In Chapter 2, the theories of provision of public goods in rural areas and the system of township finance are discussed. In Chapter3, the provisions of public goods in rural areas are compared among countries. In Chapter4. we reviewed the history of township fiscal reform and rural public goods provision in China. In the meantime a review on the history of tax-fee reform in rural China was also given.The rest chapters are the core of this thesis. Chapter 5 is consisted of four parts. The first part will introduce the framework of this study and data collection. 11 townships in Taizhou, Jiangsu for 8 years are sampled in this data. The second part introduces the current fiscal situation of sampled townships. The main results are the following: first, the township fiscal ability subjects to more constraints. Meanwhile, the distribution of fiscal revenue between different levels governments is becoming more reasonable because of the more concerns about the harmonious development. Township level fiscal balance is also more sustainable for the reason that after salary expenditure, there is still money left to invest on public services. The three part focuses on the public function of township in providing rural public goods. The data shows that although total amounts invested into public services such as infrastructure, education, health have increased in recent years, the relative proportion is decreasing. At the same time, most of public investments are funded by off-budget revenue, so it is necessary to normalize the township fiscal balance and take the off-budget revenue into budgetary management in the long run. The last part of this chapter describes the current situation of public goods provision at township level. In the past few years, the investments for public goods at township level are active. These investments are mainly used to build roads, bridges or schools. Furthermore, the township finance affords most of them (54%). The public goods investment from county and upper government paid more attention to the undeveloped townships. In general, both the number of projects and amount of investment in undeveloped townships are higher than those in developed townships. This strategy of public investment will facilitate reducing the differences between areas. However, the average size of projects for public goods in undeveloped townships is not higher than that in developed townships. Moreover, the projects of public goods in developed townships are mostly funded by themselves. So, it is an important way for increasing the provision of public goods to develop the local economy and strengthen the township financial ability.Chapter 6 tries to understand how the public goods provision in rural China is determined. Firstly, the paper try to identify what factors influence the provision of rural public goods. The results indicates that per capita income, natural conditions, industrial structure, total population, population mobility, township governance, the county fiscal system and township fiscal ability have impact on the provision of township public goods provision. Thus, the difference in natural conditions between regions should be taken into account when township makes a decision about providing public goods. In addition, upper government should make full of all kinds of resources based on the township fiscal ability to improve the provision of public goods in rural areas. One thing is need to be concerned is that township is always lack of the initiative to invest into farmland capital construction and as a result, the investment is declining year by year. Even if investment from upper government could complement the decrease partly, it will harm the improvement of agricultural comprehensive productivity in the long run. Then, we identify whether debt of townships has an impact on the provision of public goods. The results shows that the size of debt in different periods variates in townships. The size of debt in rich townships is higher than other townships and fluctuates greatly between years. Although the size of debt of townships is increasing, the relative debt risk is not high. However, it should be concerned that the size of debt and the relative debt risk in rich townships have expanded to a high level. The size of debt and the composition of creditor's rights are different in different economic level of townships, and the composition of debt and the use of debt are different as well. On the whole, the percentage of township debt induced by public goods investment is up to 28.2% in the latest years, and most of which are compensation for requisition of land owed to farmers and expenditure for school construction and road building.Chapter 7 is diverted to analyze the impacts of the rural tax-fee reform on the provision of public goods in rural China. Firstly, examinations were made on whether the rural tax-fee reform has an impact on the township finance. The results indicated that without financial transfer payment, reducing and exempting agricultural tax exerts a significantly negative effect on developing and undeveloped townships. However, there is little impact of abolishing surtax on agricultural tax on township off-budget revenue. In fact, the available fiscal capital slightly increased instead of decreasing for undeveloped townships, and reduced very little for other townships because of the subsidy for tax-fee reform from upper government. As a result, it is necessary to normalize the fiscal transfer payment and develop the economy of township to reinforce the financial abilities of township and rural community. Secondly, we evaluate the effect of rural tax-fee reform on provision of public goods at township level. The results shows that direct effect of rural tax-fee reform on budgetary fund collection for public goods is little because of special subsidy for tax-fee reform, but the indirect effect of it on the off-budget fund collection for public goods is very big. In order to ensure the effective provision of public goods, it is essential to improve the public fiscal system, to rationalize the responsibility of different levels governments for public goods provision, to accelerate the reform of comprehensive reform in rural areas, and to optimize the governance of townships and villages.The last chapter includes the major results of this study. Based on these results, thesis puts forward several suggestions to reform the financial system of township and improve the provision of public goods in rural China.