Research On China's County-level Fiscal System And Its Reform

The county is the cornerstone of state power and economic construction.The fiscal system is the basic system for the economic and social development of a country.It is great theoretical and practical significance to study the county-level fiscal system reform.In 1994,China implemented a fiscal and taxation system reform characterized by a "tax-sharing system".Under the framework of tax distribution,it established the fiscal distribution relationship between the central and local governments.According to this model,each province also adjusted the fiscal system at all levels below the provincial level.Over the past 20 years,this system has generally promoted the county's economic and social development.However,its own accumulated problems have also emerged.At the operational level,it has shown that county-level fiscal revenue is insecure,county-level financial self-sufficiency is low,and county-level debt is serious,and there is a large gap in different counties,etc..At the institutional level,the borders between the government and the market are unclear,the financial power and the authority,and the expenditure responsibility do not match,and the evaluation and incentive mechanism for officials is not in place.To solve the fiscal problems at the county level,the fundamental solution is pushing the reform of the county-level fiscal system.Moreover,as China's economic development has entered a stage of high quality development,unbalanced development has become a prominent issue,and the inadequacies of the county-level fiscal system that are in line with the rapid economic growth have gradually emerged,urgent need for reform.The county-level fiscal system depends on two factors: one is the state structure,and the other is fiscal decentralization.China is a unitary country and adopts fiscal decentralization system.The fiscal system at the county level established,which is based on the fiscal decentralization system,includes an official promotion incentive mechanism,a financial incentive mechanism,and incentive mechanism for individual interest.These incentive mechanisms promote inter-governmental competition and achieve sustained and rapid economic growth through competition.At the same time,county-level finance based on the decentralization system does not bring about the ideal supply of public goods and services,but in practice leads to insufficient supply of public goods and services.Facing China's economic development entering a new era,how to establish a fiscal system at the county level that can both achieve financial investment to public services and promote stable economic growth has become a focus of this study.By expanding the theoretical model of Fujita & Krugman(1999),this paper establishes a model of two sectors and two regions.The results of the study show that: First,the quality of government public service is the result of the difference in industrial development between regions(the industry is still dominated by most of China's counties.In the case of industry,the development of industry is equivalent to economic development.The quality of government public services is good,and the local industrial sector can achieve scale expansion through labor inflows,thus achieving economic growth.A decline in the quality of government public services will lead to a shrinking industrial sector,an outflows of labor,and decline economic growth rate.Second,a virtuous circle can be formed between the quality of government public services,economic growth and the growth of government scale.The improvement of public service quality can attract more internal and external laborers to enter the industrial production sector and promote the expansion of the industrial sector.The inflow of labor also means that the government's public expenditure scale should be expanded accordingly,but this growth is in line with the "Wagner Theorem" government growth.Therefore,the provision of public goods and services can be designed as an important function of county's fiscal,and the competition of public service quality as an important form of county-level government competition,which can achieve growth and also can provide residents with better public goods and services.The paper also conducted an empirical study of county-level financial performance.This paper mainly adopts the Data Envelopment Analysis(DEA)method to calculate the county-level fiscal efficiency in the East,Central,West,and Northeast regions of China from 2007 to 2015.The study concludes that the overall scale efficiency of China's county-level government is relatively high,while the pure technical efficiency representing the government's decision-making and management capabilities is relatively low.The financial efficiency of the county governments in eastern China is generally higher than that of central and western China..The paper also sorts out the historical evolution of China's county-level fiscal system,and analyzes the experiences and lessons of county-level fiscal systems in countries such as the United States,Britain,Japan,and India.Based on these studies,combined with previous theoretical analysis and empirical research,this paper presents some suggestions to promot the county-level financial system reform.We believes that county-level fiscal system reform must fully consider the fact that China has shifted from a high-speed growth stage to a high-quality development stage,changes in major social conflicts,and development is still the top priorities.Fisrtly,it is necessary to maintain the stability of the tax-sharing system and ensure that the central government has sufficient income to balance basic public services between counties and counties.Secondly,county-level finances should gradually reduce their economic development functions and turn to public service functions.Thirdly,more power must be given to county government to match the providing of public services.Finally,finances should continue to provide a positive incentive effect to the county government.The paper discusses some specific suggestions from two signal.From the perspective of development,it is necessary to deepen the county-level fiscal system reform,rationally define the relationship between the government and the market,rationally divide duties,financial power,and expenditure responsibilities,improve the local government revenue system,improve the transfer payment system,etc.From the perspective of risk management,it is necessary to further improve county-level financial risk management,prevent and resolve major debt risks,establish a sound long-term mechanism for county-level government debt management,strengthen moderate-scale debt management,and establish early warning systems.