China's Financial System On The Urban Scale

China's urbanization policy was made in 1980 and wrinten in the City Planning Law in 1990."Restraining the big city's population"is a key part of the urbanization policy, but the big cities` population have grown 80.7% form 1984 to 2006. Fiscal system has effect on the city growth through city government's revenue and expenditure. The aim of this paper is to analyz it.In the second part, the studies abroad about city size have been reviewed. The productivity and amenities are the foundmental of city growth and the commuting and house costs constrain the city growth. When the city population has been equilibrium all the residents get the same locational utility. With the urbanization, the exogenous factors such as food supplying, material supplying, market scale and natural amenities have a decreasing miginal influence. On the other hand, the engenouse factors such as agglomeration, local expenditures, commuting cost and house price have an increasing miginal influence. Fiscal system affects the city growth by the engenous factors.The fiscal system of PRC has three statges. In first stage the central government monopolized the revenue and expenditure from 1950 to 1979. The price relation was twisted and all most the economic surplus has been transferred to the manufacturing sector. The central government invested and controlled the manufacture factories to pursuit revenue. The central government prefers to invest large factories that form the industry basis of big cities.In second stage the local government had expenditure right for their own finiance from 1980 to 1993. The local governments can get the high ratio from the revenue growth so the local government has been incentive to focus on local development. The local government can get fiscal resouse from investing and controlling manufacture factories. The residents who live in rural are allowed living in small town so the town grows more quickly. The locational utility in the small town and the rural has no difference, but the residents in the big citis have a high locational utility. In third stage the central government shares the taxes with the local governments from 1994.The local governments focus on the infrastructure and the local public goods demand. The local governments give up the controlling right of the local enterprise, then the competition and agglomeration will be hanppen. The city governments welcome the rural residents to live in, but they must buy the house, because the city government can get much revenue from the property price. The central government centralizes local fiscal resources and the smaller city gets the fewer fiscal resourses. Residets prefer to the big city to get more income and high amenities. The relationship between city population growth and the fiscal characteristics are used to examine the influence of fiscal system. The regressions confirm the theoretic analysis. The per capita expenditure always has a significance positive effect. The per capita revenue only in the second stage has a significance positive effect and the influence is weaker than the expenditure. The wage has a significance negative effect in the first and second stage that means the rural resident were not allowed living and working in citis. In the third stage, the wage has a positive effect that means residents easily move to city now.The local expenditure can improve the property value so the city government should get the differential land rent to finance the local public goods. Now the city governments get the rent from grand of land, which induce many problems. Property tax is a better way, which is a direction of city land rent collectiong pattern.