Research On Fiscal Decentralization And Local Supply Of Public Goods

Since china’s reform and opening up in1978, the fiscal decentralization reform has beenan important subject in the research of China’s economy. Economists have reached a relativelybroad consensus: Based on the western decentralization theory and practice, China’s fiscaldecentralization system formed through years of exploring research, has promoted thecompetition between the local governments at various levels, improved the localgovernments’ motive power of the economic development, met the residents demandpreferences more accurately, enhanced the effectiveness of the local supply of public goodsand achieved the optimal allocation of resources. And it has laid the institutional foundationfor the development of social, economic, political and other aspects in the past30years.It is said in the17th National Congress of the CPC:" Implementing the scientific conceptof development, we should actively build a harmonious socialist society, accelerate socialdevelopment with the focus on improving people’s livelihood." Whether employment, healthcare, social security and other livelihood task can be completed smoothly depends on if theaspect of the local public products and services can be supplied effectively. The purpose ofthis paper is to research the supply of local public products during China’s transformation inthe fiscal decentralization system.With the completion of the reform of the tax division system in1994, local fiscaldecentralization system gradually improved along with the “tax division”, forming a financialmodel in which local governments at all levels have independent income and simultaneouslyshoulder the expenditure responsibility. It is beyond doubt that the fiscal decentralization haspositive effect on the development of our country. However, china’s fiscal decentralizationsystem is in a dynamic process of improvement. The district residents can’t adequately showtheir own demands and preferences and the local governments can’t fully reflect residents’preference for local public goods either. Meanwhile the current system is short of financialincentives for local governments at all levels to supply local public goods effectively, leadingthat the local governments appear many disadvantages during supplying the local public good.For example, the total supply is rising rapidly while the structure of supply is distorted seriously, it is widespread that people attach importance to the economic development andignore the people’s livelihood, there’s a serious imbalance of the supply from the east and thewest regions, the supply gap between the urban and the rural areas is widening. With the localpublic goods supply under fiscal decentralization system as the object of study, the paperanalyzes and discusses the problems of total supply, structure and regional distribution of thelocal public goods in the fiscal decentralization system, through the financial data since thetax division system. Then the paper theoretically researches the mechanism of action of theexisting system of fiscal decentralization in local public goods supply from the aspects of theexternal environment, fiscal incentives and system design. After that, the paper does a positiveanalysis combining with the panel data model. Then according to the restricting factors andthe analysis conclusion, the paper makes a suggestion about how to improve the supply oflocal public products in our country.