On Establishing China’s Fiscal Expenditure Legal System

Public Finance is the economic behavior of countries to use political power to occupy part of the social wealth and provide the community with public goods, is an important tool of macro-control with the goal to optimize resource allocation, and safeguard social fairness and justice, to ensure a healthy economic development, including finance revenue and expenditure.Financial expenditure is mainly related to the allocation of fiscal revenue, which is the second phase of the financial allocation of funds and plays an irreplaceable role in macroeconomic regulation. However, there are many issues in the field of China’s fiscal expenditure, including fiscal expenditure expansion, imbalance in the fiscal expenditure structure, the absence and offside of macro-control, which has seriously hindered the healthy development of the economy and the optimal allocation of resources. Finance Act is an important component of China’s macro-control legal system, including finance revenue laws and finance expenditure laws. Contrast to the researches on financial expenditure laws. Financial jurists more concern about finance revenue laws and even ignore the researches on co-ordination of fiscal spending law. At the same time, the legislation of finance revenue is also better.There are so many drawbacks on the legislation of finance expenditure.Against this background, the second part of this paper focuses on the theoretical foundation of China’s fiscal expenditure legal system from a law perspective and economics perspective. First, China’s fiscal expenditure legal system should be established on the basis of the theory of market failure and New Institutional Economics. The basic properties of public goods ask government to provide public goods to meet the public demand in use of financial funds. The level of public goods requires a rational division of property rights and powers between higher level government and lower level government. At the same time, fiscal expenditure should make up the market failures to keep the market working properly. Because both the number of China’s fiscal expenditure laws and the structure of China’s fiscal expenditure laws are not balanced. China’s fiscal expenditure laws are not able to play the restraint and incentive roles efficiently. State is the economic man, to maximize their own utility. While the fiscal expenditure legal system is able to prevent the abuse of power, to protect private rights, so as to realize the maximization of social welfare. Second, from the constitutional point of view, the state power is from the civil rights. The state once authorized, not only has a comparative advantage on the violence, but also has obligation to provide the public goods and protect the human rights. The fiscal expenditure legal system is able to regulate and restrain government fiscal expenditure behavior to avoid the abuse of public power, also in order to maximize the protection of the public interest. Third, from the economic law perspective, Civil and commercial Law can improve market efficiency, but which can’t make up the market failures. Economic Law can make up the market failures in use of market regulations and macro-control. The financial expenditure legal system is the legalization of financial methods, which is an important part of the macro-control law, also plays a pivotal role to make up the market failures and to optimize resource allocation. The financial expenditure legal system can keep the balance of social total revenue and expenditure, optimize the allocation of resources, ensure the supply of public goods to meet the public demand, promote positive externality behavior and limit negative externalities behavior, reduce the market risk and narrow the income gap.The third part of this paper focuses on the presence and drawbacks of China’s fiscal expenditure legal system. As follows:Financial Basic Law has not yet introduced. The financial expenditure is lack of overall guidance. There is no special legislation about financial powers and expenditure responsibilities between higher level government and lower level government. The financial powers do not match the expenditure responsibilities. There are so many serious shortages in budget management system, such as budgeting and budget adjustments, fiscal period and finance supervision. The financial transfer payment structure is irrational. The financial transfer payment mode is single. There is also no accurate computational standard to Arrange financial transfer payment. There is a serious conflict in the Government Procurement Law and the Public Bidding Law. For government investment, there are so many serious loopholes in the project approval, management and oversight. The fiscal expenditure supervision mechanisms and accountability mechanisms are not so complete that reduce the efficiency in the use of financial funds.In the market economy countries, there are so many commonalities in finance expenditure, it is important for China to study other countries’experience in establishing fiscal expenditure legal system. The fourth part of this paper select the U.S., Germany and Japan, the three countries have established complete financial expenditure legal system with its own characteristics. In the U.S., Germany and Japan, Finance expenditure responsibilities are limit listed through the laws of higher rank. Budgetary expenditures subject, annual period, budgeting and budget examination are reasonable arranged through the various laws and regulations In Germany and Japan. In financial transfer payment, Germany established crisscross transfer payment mode through the complete legal system. U.S use "Factor Method" to calculate transfer payment amount. In government procurement. The U.S set up special purchasing agency, the definition of "the project" is more specific. In government investment, the U.S. and Germany established the reasonable and Faultless investment approval mechanism, including the project management mechanism and investment supervision mechanism. In the Financial expenditure supervision, Japan established the congress, specialized agencies and the public’s comprehensive supervision mechanism.The last part of this paper tries to establish financial expenditure legal system on the basis of other countries’useful experience, which should be suit for our national conditions. Enact Fiscal Basic Law to Co-ordinate the financial expenditure behavior. Enact the Financial Division Act to divide financial expenditure responsibilities reasonably. For the budget law. introduce incremental budgeting, rolling budgets and Establish budget approval mechanism, budget accountability mechanisms. Enact the Financial Transfer Payment Law, which can improve the transfer payment mode and the standard to calculate the amount of transfer payments. Improve the government procurement law system to coordinate the conflict between the government procurement law and tendering and contract regulation. Improve the government investment law system, including the government investment decision-making mechanism, project management mechanism and supervision mechanism. Improve financial expenditure supervision and legal system, and establish the all-round, multi-level and solid financial expenditure supervision mechanism, so as to improve the efficiency of financial funds.