A Research On Building Government Fiscal Capacity At The County Level In China

The government fiscal problem and the excess debt at the county level, occurred after the tax reform in 1994. have imposed negative implications on the operation of the grass-roots government, the provision of public products and services and the development the social welfare and remained unresolved until now. In CPC’s 17th Convention,3rd session, it has been agreed that the government administration at county level should be offered more space to development on its own and the general transfer payment, fiscal capacity and its administrative capacity should be better coordinated so that counties’economic strength can be further invigorated. This paper, based on the basic theory on local government fiscal management, i.e. the hierarchy theory on public products and the distribution of fiscal right theory, builds up an indicator-oriented system to evaluate the fiscal capacity on the county level in China with the full knowledge of the definition of local government’s fiscal capacity as the precondition. Meanwhile, this paper conducts a comprehensive evaluation and analysis on the relevant statistics of the counties in Jiangsu Provinces, Hubei Province. Jiangxi Province，Guizhou Province and Qinghai Province and the causes contribute to the counties’ fiscal difficulties are brought under analysis. Drawing upon the experience of the developed countries (the United States. Germany and Japan), at last, the paper proposes suggestions and strategies to build fiscal capacity at the county level in China in accordance with the national condition.Research Conclusions:A. The causes of the imbalance on the fiscal capacity among counties in China are multi-faceted, including:the incoordination between fiscal capacity and administrative capacity (the later has overwhelmed the former), the immature intergovernmental transfer payment system, the impact of the cancelation of the agriculture tax on the agriculture-oriented counties, the nation’s unbalanced development strategy and the gap on counties’ resources and competency.B. The Suggestions on Building the Fiscal Capacity at the County Level:a. Rationally draw the borderline between the government and the market, further clarify local government’s functions and eliminate the ambiguity of duties among its administrative departments;b. Conduct an adjustment on tax categories based on the principle of the fiscal capacity-administrative capacity coordination and establish the backbone tax categories in local tax system.c. Improve transfer payment system, cancel the practice of tax return, increase the proportion of the general transfer payment and optimized the transfer payment structure.d. Place the management in this respect under the supervision of province, (with local variation)e. Intensify the effort to development counties’ economy.