Research On Fiscal Capacity Of County Government In China

County government which plays the key role in governance is the most important level in the hierarchy of local governments in China,County government function realization has relationship with the overall economic and social development, while the county finance is the material guarantee of government functions.The reform of tax sharing system adopted the pattern of financial allocation between central and local governments, but the administrative authority among different level government are still not clear. Now the major problem is that county government has insufficient funds to perform its functions, at the same time the central government gathers too much money compared to the local government and shifts too many responsibilities to them. Based on the analyzing of the concept of fiscal capacity, this dissertation links fiscal capacity and fiscal function and, builds a path to evaluate fiscal capacity on the basis of fiscal effects. Adopting demonstration-analysis and theoretical-analysis, this paper indicates the fiscal capacity and the fiscal operation before and after the tax-sharing-system reform.(1)Based on the definition of capacity, this article defines fiscal capacity as the condition in performing fiscal function. The research builds a path to evaluate fiscal capacity on the basis of fiscal effects. It not only establishes a model of fiscal capacity using resource and institution factor as the major variable, but also refines the model of county government fiscal capacity according to the feature of county finance.(2)After gaining a clear idea of the history of county finance development, the conclusion could be made that the tax-sharing-system reform changed the state of local finance. The effects showed that fiscal resources flowed to central government, and meanwhile county government gathered less funds and need the transfer payment from central government. The lower the government level the more responsibility expands. The county government fiscal self-sufficiency rate decreased year by year. And the regional gap is widening. With the factor analysis method, the comprehensive index which represents the county government fiscal effect can be calculated.Through the analysis of the index, the implementation degree of county finance is decreased after tax sharing reform, and there is an obvious difference among the regions.(3)By using the method of econometrics analysis, this article estimates county government fiscal cacaity and potential fiscal capacity from1992to2011.Firstly, the research uses the fitted value which eliminated the residuals as the index of actual county government fiscal cacaity. The results indicate actual county government fiscal cacaity decreased year by year. In the east, west and the central of China, the county government fiscal cacaity is different.The regional differences are also enlarged year by year. Secondly, the research uses Winters exponential smoothing method to evaluate potential county government fiscal cacaity. Through the analysis of national and regional potential ability of county government, the reform of the tax system in1994did not significantly reduce potential fiscal capacity of county government, but the capacity weakened by the following adjustment of the tax system after1994. By calculating the coefficient of variation, the article reflects the differences between national and regional level of government fiscal capacity. It shows that even with the balanced allocation of resources. The differences of potential fiscal capacity are obvious. Thirdly, this research defines the fiscal capacity under public service equalization condition as the capacity that county government should have. Through the analysis of the reality of the situation, it could be realized that there is significant difference between actual fiscal capacity and ideal one. It is difficult to achieve the goal only by the county government’s own strength, which needs the help of external forces.(4)Through the comparison of the county government fiscal effects and realistic fiscal capacity, under fiscal contracting system, the fiscal system operation does not completely follow the trajectory of the fiscal capacity. The reform of tax sharing system changed this situation. Response of county government on policy changes with a lag, and the adjustment of the policy may lead to the deviation of fiscal operation. The implementation degree differs from different counties, but the regional differences are decreasing. Furthermore, the changes in the underlying fiscal capacity are more stable than practical capacity. The policy adjustment for the influence degree of the potential fiscal capacity is significantly less than the impact on the real fiscal capacity. Within the framework of the contract fiscal system and even long after the tax sharing system reform, the county government excessively mined fiscal resources, as a result, fiscal capacity beyond the potential capacity. Nevertheless, this situation changed after2002and the county government finance running went back to reasonable interval. But there still lack the fiscal effort which could lead to effective transformation of potential fiscal capacity to the actual fiscal capacity.(5)Using Theil entropy index, this paper analyzes economic, institutional, natural resources, social resources and other non economic factors one by one which have effects on the formation and operation of county government fiscal capacity. The results are as followed:①The development of county economy has a positive role in the formation of county finance. Primary industry is still the main driving force for the formation of fiscal capacity, the second or the third industry effects were limited. The expansion of investment could produce the short-term effect significantly, but it is difficult to form an effective support for the long-term stable development.②The possession of natural resources would not help to narrow the regional gap between the county government, and the regional planning also had a negative effect on the equilibrium of county government fiscal capacity.③The size and structure of civil servants in county governments are not reasonable. The qualities of personnel are uneven. The necessary fiscal resources to secure the normal consumption did not play its role, and this increased regional disparity. Through the comparison of county development especially in the rural fields, the progress of rural areas has significant influence on the formation of the county fiscal capacity. Therefore, it is an effective way to vigorously support the development of rural economy and society in order to ease the fiscal difficulties of county government.④Different system arrangements have different effects on the formation of county government fiscal capacity and operation. Although the method of controlling county finance by provincial government helps to narrow the regional gap, it also has side effects and needs to be discussed carefully. The larger the county government fiscal power, the smaller the gap of county government fiscal capacity. From a practical perspective, the effect of independent finance to the county fiscal capacity is weaker than the transfer payment. And the transfer payment did not play the necessary role in making up the fiscal gap. Through the analysis of the expenditure level, the expenditure responsibility has larger effect to the county finance than the allocation of finance sources. From this point of view, the transfer expenditure effectively narrows the regional gap, and purchase expenditure promotes the balanced allocation of resources.⑤Through the calculation of the different factors of the implementation degree and effort degree, this article indicates institutional arrangement which did not produce effective incentive to the county government fiscal operation, and this is the main reason for the county government fiscal dilemma.