The Research On The China Public Finance System Conversion And Target Mode

Since early 1950's, China began to carry out heavy industry-oriented development strategy, which resulted in a highly centralized and unified planning system including public finance. With economic development, it is very difficult for the central planner to manage and control directly a vast amount of enterprises and the monitor is costly and hard to perform. So many enterprises and fiscal powers are devolved to lower administrative levels. The decentralization damaged much of the former economic linkages among industries, enterprises and regions through the central planner and the former mechanism of resource allocation was upset. The fiscal decentralization led to a series of consequences. It is the decentralization of the public economy management system, not the general fiscal decentralization, which has significant effects on economic performance. The prerequisite of the fiscal system reform is to forgo the heavy industry-oriented development strategy, restructure the state-owned enterprises with market, and convert the fiscal system into public finance. The division of functions and powers between central and local governments or among local governments at different levels should be matched with the externality scope of the public goods that are offered respectively by the governments at different levels. The structure of politics and society determines the targeted pattern of the fiscal relationships between the central and the local governments in China, which should be centralized in government revenue and decentralized in government expenditure. The share-tax reform since 1994 is in the right direction and necessary to set up the fiscal system consistent with market economy. The share-tax reform should be perfected further by the transition of the government functions in the future.