Analysis Of The Non-uniformity Of The Fiscal Behavior From Central And Sub-national Governments

Viewed from the angle of political system, China proves to be a unitary country and the central government governs the other governments at all levels. For instance, the common documents by the State Council mark that "This document is to be sent to counties", and thus sub-national governments'behavior is supposed to get consistent with the central government; Unlike the way of officials'appointment from sub-national governments in western countries, sub-national governments'officials in China are nominated by the central government and accordingly their behavior should also get consistent with the central government. Even if there exist promotion competitions among officials in sub-national governments, their behavior should be recognized by the central; Viewed from the angle of economic system, the central government gets hold of the tax power (the central government has the final say in the establishment and abolition of all revenues), the redistribution of fiscal revenues (the framework of tax sharing system is constructed by the central government),etc. Fiscal behavior on the part of the sub-national governments is also in the control of the central government. However, in reality, sub-national governments implement policies from the central government in a selective fashion, and even their behavior is against the spirit of the central policies, followed by some common phenomena, for example, "Central policies cannot be spread out of the Zhongnanhai", "Central government has its policies while sub-national governments have their own ways of getting around them", etc. Finance turns out to be the foundation of national governance and the long-term inconformity between the central and sub-national governments'fiscal behavior will presumably undermine the political and lawful foundations of our country, resulting in crisis.By employing the way of institutional analysis, we know that the causes of issues lie in the mismatch between financial resources and powers as well as responsibilities. Different from the western countries, the way of fiscal decentralization in China falls under "vertical decentralization", and a great deal of powers and responsibilities belong to mutual ones in both the central and sub-national governments and thus fiscal decentralization does not necessarily lead to the play of two initiatives from both central and sub-national governments. This dissertation, based on the comparative analysis between system and behavior, argues that behavioral analysis does have its feasibility and in terms of the research perspective, the fiscal institutional analysis is shifted to fiscal behavioral analysis from the general to the specific. By virtue of principal-agent theory and fiscal decentralization theory, the fiscal relations between the central and sub-national governments are re-orientated as the relations between division and cooperation from the perspective of fiscal behavioral analysis. Moreover, under the vertical bi-order national governance structure, the establishment of this relation is further secured by the relatively independent national and sub-national governance system. Division and cooperation is not simply the co-work and not the totally different absolute division either, but is to clarify responsibilities so as to combine the central with the sub-national governments to form a resultant force. As a result, a logical framework which ranges from fiscal decentralization to division, from cooperation to the resultant force again gives full play to two initiatives.The non-uniformity between the central and sub-national governments' fiscal behavior refers to the non-uniformity of the essence of behavior, namely, the deviation of behavioral agent towards the overall objective. This dissertation embeds this type of behavioral analysis pertinent to non-uniformity into the newly-built logical framework and concludes that under the vertical national governance structure, division generates relatively independent bi-order governance system, allowing the non-uniformity between the central and sub-national governments'fiscal behavior; cooperation requires to remain the integrity of national governance and achieves the goal of uniformity in essence by way of the full interaction between the central and sub-national governments; fiscal behavior is the very reflection of governmental decision-making based on the risks and uncertainty, so the expansion or reduction of public risks will be the judgment standard as to whether both the central and sub-national governments'fiscal behavior will form a resultant force or not and thus further extends the judgment standard relevant to whether behavior accords with the essence; the play of two initiatives requires both the central and sub-national governments to keep consistent with each other with regard to behavioral motivation, decision rationality, behavioral preference and considers this as the theoretical basis of historical analysis.The historical analysis relevant to the behavioral non-uniformity between the central and sub-national governments mainly aims at the historical process about the evolution of the fiscal relations between the central and sub-national governments since the establishment of P.R.C. in order to judge which behavioral non-uniformities are substantive or seeming through the reappearance of scenarios of the historical evolution and further rectify or encourage them respectively. Before the reform and opening up, the behavioral non-uniformity between the central and sub-national governments was still in its infancy. Put it another way, non-uniformity is not concomitant with a nation's establishment but is of historical attribute. However, absolute uniformity leads to inefficiency. Under the financial contract system, fiscal behavioral non-uniformity between the central and sub-national governments proves to be relatively high. Because the competitive intendancy exits among sub-national governments and the preference of pursuing efficiency, to some extent, the initiative of sub-national governments'fiscal behavior is kind of centrifugal, resulting in huge externalities. For instance, market segmentation and cutthroat competitions caused by the competitive development among sub-national governments which is beyond the bottom line of decentralization. Tax sharing system, as the centralization reform, the initiative of sub-national governments'fiscal behavior is far from being decreased, but contributes to the rapid development of China within two decades. By employing comparative analysis method, the maintenance of the initiative of sub-national governments'fiscal behavior rests with the stability of policies in the tax sharing system. There arguably existed some differences among various provinces in each period under the financial contract system. Tax sharing system firstly keeps uniformity all across the country, and the same is true of the adjustment of policies. Within this chess-game-like arrangement, less competitions and "learning (copying)" appear in sub-national governments and more respect is shown to new rules,Theoretical analysis starts with the clear powers and responsibilities and identifies expenditure as the point of junction, income division as the foothold. However, in the empirical analysis, income division is determined, and laws and regulations about the income are similar to the ultimatum game, so the sub-national governments have no choice but to accept it. On the expenditure-side, "behavioral federalism" on the part of the sub-national governments leads to the selective implementation of central government's policies or the contravention of sub-national governments' fiscal behavior against the central government's policies. Accordingly, too much and too meticulous governance from the central government will affect the mental functions of sub-national governments, giving rise to the expansion of public risks due to the sub-national governments' fiscal behavior. For example, the sub-national governmental debts have already exceeded the amount of the central government's debts and the agent costs of transfers stay at a high level.The Third Plenary Session of the 18th Central Committee has set comprehensive reform goals. Streamlining administration and instituting decentralization in the public sectors and such law reforms as Legislative Law and Budget Law can be considered as the foundation reforms for the adjustment of fiscal relations between the central and sub-national governments. After recognizing the reasons of the motivation non-uniformity of the central and sub-national governments'fiscal behavior, the behavioral non-uniformity resulted from the vertical competitions between the central and sub-national governments, the horizontal competitions among sub-national governments, this dissertation summarizes the experience relevant to the reform of adjustment of fiscal relations between the central and sub-national governments in France, Germany and Japan. And also this dissertation draws some implications from these aspects as follows:promoting normative legalization reform, clearly dividing the powers and responsibilities and expenditure responsibilities, emphasizing more the self-governance in sub-national governments, focusing on letting the public do their own shares, strengthening information disclosure and public participation, etc. Finally, it concludes that in order to give full play to two initiatives from both the central and sub-national governments, we firstly need to establish a general thought which aims at minimizing the public risk, matches the national governance idea, embodies the connotation of modern fiscal system. Second, we need to give full play to these two initiatives from both the central and sub-national governments by way of decreasing the central government's administrative control over the sub-national governments, legalizing and normalizing the adjustment of the relations between them two and rationalizing the "vertical and horizontal relations", forming a self-governance framework in sub-national governments, empowering sub-national governments budgetary equilibrium in some way and facilitating the interactions between them two.