Research On The Division Of Fiscal Spending Among Local Governments

How to improve the fiscal system subprovince is an important part of China's fiscal reforms. And the scientific division of fiscal expenditure among local governments is a key link to the perfection of fiscal system under province. Currently, the division of fiscal expenditure among local governments exits the unclarity problem, which has lead to several further problems such as the heavy burden of basic governments'fiscal spending, the insufficient supply of rural public goods, the ambiguity of division of inter-governmental revenue, etc. Therefore, it has large significance for us to realize the goal of China's public finance reform on the basis of referring given theories and their further investigation so as to effectively resolve the rational division of fiscal expenditure among local governments. Generally speaking, there are three main meanings concerning the theoretical research and institutional design. The first one is it satisfies the necessary requirement of establishing and perfecting the democratic fiscal system. The second one is it is the basic requirement of enhancing the fiscal transparency. The last one is it is the initial requirement to realize the overall goal of management of governmental spending management.The traditional theories concerning division of inter-governmental fiscal spending mainly include the level theory of public goods, the theory of transaction cost and preference distinguishing, and the theory of externalities and scale economy. On basis of detailed analyzing the traditional theories, this paper presents the followings viewpoints.Firstly, the theory concerning levels of public goods provides a major foundation for the division of fiscal spending between central and local government, while it isn't completely applicable to the division of fiscal spending among local governments. But this theory is still a fundamental theory about guiding the division of inter-governmental fiscal spending.There are three difficult problems regarding this theory's guiding role. One is the dynamic change property of scope of local public goods enhances the trouble of theoretical guiding. The other is the existence of practical openness local public goods makes it difficult to define the level or layer of public goods. The last one is that the otherness of factors influencing the layer of local public goods and level of local government fiscal expenditure weakens the theoretical guiding result of public goods theory.At the same time, the theory concerning levels of public goods is still a fundermental theory for the division of inter-governmental fiscal spending. The reasons are as follows. The first one is it clearly shows the essence of division of fiscal expenditure is the division of supply liabilties of public goods. The second one is it provides a basic foundation for the definition and division of public goods between central and local governments. The third one is it provides a basis for the public goods with evident closeness property. The last one is this theory provides a technique to divide the local public goods with openness character.Secondly, the theory of transaction cost and preference distinguishing should become an assistant principle to divide the inter-governmental fiscal spending, but it can not serve as a key guiding principle. This conclusion results from several main reasons. To begin with, the appliance of this theory biases toward commonsense deduction. The second point is that the improvement of information communication platform and management method continues to change the applicable degree of the theory. The third point is that the scale of government is not necessarily inversing to the residents'preference distinguishing degree. The fourth point is the substitution relationship between scale economy and scale of local government restricts the performance of this theory's efficient. The fifth point is that the practical conditions are not full for the basic governments to fulfil more fiscal spending liabilities.Meanwhile, this theory can serve as an assistant principle for the division of local government fiscal spending because of the following two reasons. One is it can provide an oriental guidance for the division of local government fiscal spending. The other is the theory of preference distinguishing satisfies the residents'preference, which exactly presents the function essence of governmental fiscal expenditure.Thirdly, the externalities and scale economy theory provides an important supporting point for the division of inter-governmental fiscal spending, while it can not undertake the important task of serving as an comprehensive principle. The main reasons lie in that this theory is more applicable to the analysis of one specific public goods or service. Furthermore, this theory is more apt to a conceptualization annotation and it will be confront with many practical difficulties.We can get a simply conclusion that the government effectiveness (or failure) and its degree have different level hierarchy by analyzing the traditional theories. We can sum up this conclusion as that the degree of preference disguising, and the existence of externalities and scale economy make the performing efficiency of one same fiscal spending different from different governments. Besides, the ability to provide public services of different level governments differs from each other. Furthermore, there exists difference of the property failure of different governments. According to what has been mentioned above, we can determine the comparative better undertaking body if we can measure the failure degree of different level governments according to some standard. That is we can divide the local government fiscal spending according to the effectiveness (or failure) degree of one government. We call this viewpoint as a division mode of fiscal spending under pushing by government effectiveness (or failure).The division mode of fiscal spending under pushing by government effectiveness (or failure) is a comprehensive principle for us to find out how to scientifically divide the local governments fiscal spending. Its largest theoretical and practical meaning lies in that it can undertake some standards to reasonably divide the local government fiscal spending, which solves the problem of continuous absence of general standard to some extent. Besides, this mode enlarges the research field of view on the division of local government fiscal spendings. It counts the division as not only the handling problem of governmental fiscal relationship but also the process of dealing with the relationship between market and government.We can annotate the comprehensive principle from the decentralized line and the standard of efficiency and equity so as to construct a theoretical framework regarding the division of local government fiscal spending promoted by the government effectiveness (or failure) theory. The main theoretical supporting points are as follows:The first supporting point is concerning the decentralized line of fiscal spending, which is promoted by basic governments. The decision pattern of public goods includes "from-upper-to-lower" manner and "from-lower-to-upper" manner. When the former manner can satisfy people's demand, the division of inter-governmental fiscal spending should obey the financial division mode of administrative promotion. On the contrary, the mode of basic government's promotion should be chosen. The two financial division modes provide a divisional path for fiscal spending, and we think the latter pattern has more comparative advantage. As far as the local government fiscal spending division is concerned, the democratic principle promoted by basic government should be the first-line principle.The second supporting point is concerning how to determine the attribution of a fiscal spending according to the efficient standard. There are several logoses we should follow to determine the attribution of fiscal spending according to the efficient criterion. In the first place, the fiscal spending responsibility of every level local government must esteem the market efficiency and be useful to the action of market efficiency. In the second place, the fiscal spending activities of every level government should be useful to compensate the market failure which includes the monopoly, asymmetry of information, and externalities, public goods; etc.In the third place, the attribution of fiscal spending division should obey the essence of financial functions and emphasize on the performance of public goods and services. In the fourth place, the division of local government financial spending should be useful to enhance the internal efficiency of financial expenditures. At last, the attribution of fiscal spending liability should be useful to arrange for the inter-governmental financial relationship and the participation and monitor of the people.The third supporting point is concerning how to determine the attribution of a fiscal spending.according to the equity standard. As we all know, efficiency isn't the only standard to value resource allocation and the social equity standard should also be considered. From only the view of equity, we should try to make the fiscal spending responsibility to the government with more ability to promote social equity. Detailed speaking, the attribution of local government fiscal spending should in favor of the egalitarianism of public services and the lowest equity goal of one country's basic public services.Generally speaking, we can use some countries' practical experiences for reference to our country's inter-governmental fiscal spending division such USA, Canada, Germany, and Japan. We can get the conclusion and revelation from those countries as follows: Firstly, every government's fiscal spending mainly focuses on the field of market failure. Secondly, the division of fiscal spending among governments must obey some principles. Thirdly, the division should also obey law. Fourthly, we must cope well with the combination of centralization and decentralization.There are several initial conditions concerning the division of local government fiscal spending. The first one is we should correctly deal with the relationship between market and government. The market role should be prior as while as pay much attention to the government failure problem. The government should undertake the mission of correcting and compensating the market failure and timely adjust the scope of market and government acitivity boundary.The second one is how to define the scope of governmental fiscal spending. Under the framework of public finance, the standard of governmental function concludes the following aspects. On one side, the field of market failure is the basic standard to choose the governmental function. On the other, the degree of negative or positive externalities is also an important standard. Besides, the scope of government function presents a dynamic characteristic. The third one is the definition of the exact scope of local government fiscal spending.The basic line to divide China's local government fiscal spending includes the following contents:Firstly, we shoule envisage the current problem concerning division of local government fiscal spending. China is a market-institutional-transition country with massive population. At the same time, it has a unique five-layer government frame. Consequently, it is very complex for China to divide its inter-government fiscal spending. Nowadays, there are several problems concerning the division the spending, which includes the absence of standardization and legality, the unscientific government orientation, and the lower efficiency concerning dividing the fiscal spending among government. All these problems are what we must pay enough attention to.Secondly, we should construct a institutional environment for the division mode of fiscal spending of different layer governments. Considering our country's basic condition or state, we shoule support it in view of formal institutions and other informal institutions. The fiscal spending division mode under promotion of government effectiveness (or failure) needs the support of formal institution, and it also will be influenced by some informal institutions. On one hand, the formal institution should play a security role in the fiscal spending division mode under promotion of government effectiveness (or failure). One the other hand, the informal institutions must be paid enough attention to. Withal, the former institution should exert more effects on the security role to the division mode of fiscal spending. And the latter should be focused on the influence of the mode.Thirdly, we should make clear the layer of local government fiscal spending division. Nowadays, we should choose the new financial system that the county finance is administrated by province finance but not city finance. This new financial system will reduce the government layer, and it makes the basic village and town finance mainly take up with the rural financial spending liabilities.On basis of what have been mentioned above, this paper tries to divide some specific fiscal spending items including the government sectors and businesses, foreign affair, social order, science and education, public affairs, industry and economic development, and social security, etc. The divisions of all those items should obey some certain principles.After division of local government fiscal spending, we also are required to pay close attention to the match of government financial resoures and its fiscal spending liabilities. The financial equalization issue becomes the emphasis.The complete match between inter-governmental tax power (tax items) and the correspongding fiscal spending is an ideal condition of financial equalization. But according to the current conditions, we think this ideal state can not completely achieve. There are three reasons. One is that the division of inter-governmental tax power (tax items) is an institutional arrangement on basis of many principles, but not only on undertaking the duty of financial expenditure. The second reason is the upper governments need certain control ability to some given extent. The third reason is the institution rigidity of inter-governmental tax power (tax items) can not be suitable to the elasticity of fiscal spending liability adjustment.The inter-governmental financial subsidy may contribute to the equalization of inter-governmental fiscal ability. And we can exert this possive role from the following three aspects. One is we should try to make the financial ability of different lay government match with its fiscal spending liability. The other is the particular goal of financial subsidy should match with multiple methods. The last is we should construct a compensation mechanism to the weak people in every government popedm.