Analyses On The Equalization Effect Of The Financial Transfer Payment To The County-level Fiscal Capacity Of Shandong Province

It has been30years since1978, the year of reform and opening up, China’s economic development has achieved remarkable achievements. However, China’s expanding regional disparities has also increased seriously. Due to the factors of resource endowments, historical conditions, transportation, science and technology, capital and financial system, the disposable financial resource differences are generated among the local governments. Although it is reasonable within limits, the government should take measures with the regional financial disparities if the government functions are prevented.The financial transfer payment policy can correct the financial differences among the regions through the executive power of the government in order to realize the coordinated development of regional economy, and it has been an important policy instrument used widely by market economy country. China has made great improvements in exploration and in-depth reform of the financial transfer payment system reform since the tax-division system reform, along with the expanding scale of the central government’s fiscal transfer payment. Currently, the study on reform and improvement of China’s system of transfer payments and equalization effect mainly focus on the provincial government level and the conclusions show that central government transfer payment dose have the effect of equalization with a growing trend. As we all know, the county-level government is the basic unit to provide public services, and the balanced development of the county economy plays a significant role in promoting the harmonious and stable development of national economy. Since the revenue rights are centralized while the expenditure rights are decentralized in the tax-division system reform, many county-level governments has fell into financial difficulties and the disparities of county-level fiscal capacity have expanded. Therefore, it is fundamental to measure its effect on the regulation of county government financial differences when the equalization effects of fiscal transfer payment system are measured. Currently there is lack of study on the county-level government, and the conclusions based on all the counties and counties within different provinces are different and incomparable since the distribution of financial resources framework is not uniform under the province level. Therefore it is reasonable to select Shandong Province as a representative of well developed provinces to study the equalization effect of financial transfer payment.Based on the statistics of the91counties of Shandong province from the year1999to the year2011, this paper selects deviation coefficient, Theil index and Gini coefficient as index, compares the calculation results and makes statistics and analysis of various indicators to examine the equalization effect of financial transfer payments to the county-level fiscal. Finally, the paper makes conclusion of the three kinds of indicators and puts forward some suggestions of perfecting the fiscal transfer payment system. Among the three indicators, the coefficient of variation is only used to describe the situation, the other two indicators are influenced by income divided. Three indicators are used in this paper. On the one hand, the analysis is more comprehensive and robust. On the other hand, some new conclusions are proposed based on different perspectives (Theil index and Gini coefficient) compared to the traditional analysis based on deviation coefficient. This study enriches the theory of fiscal transfer payment as well as provides some guidance in practice to promote the improvement and development of China’s fiscal transfer payment system.The innovations of this paper are as follows:Theil index analysis is applied for the first time to decompose the regional fiscal disparities based on the division of administration within a province. This paper calculates the deviation coefficient of the total transfer payments as well as different type of transfer payments of Shandong Province to investigate the effect of the transfer payment to the county-level fiscal capacity. The results of the three indicators are compared and integrated.This paper is divided into the following five sections:The first part is the introduction, introduces the research background, significance, research methods, thesis structure, innovations and shortcomings;The second part is a literature review, including the introduction and commentary on the representative literature of scholars at home and abroad of equalization effects of financial transfer payment;The third part reviews the basic theory of government transfer payments and equalization, it provides the theoretical basis for this study;The fourth part is the analysis of the county-level financial status and transfer payments constitute in Shandong Province;The fifth part analyzes the fiscal equalization of the financial transfer payment in Shandong Province based on three indicators including deviation coefficient, Theil index and Gini coefficient. The results show that:The financial transfer payment in Shandong Province played a certain equalization effect on the financial differences among the county governments, while the intensity during the observation period was not stable; According to the results of deviation coefficient, tax return almost did not generate the equalization effect, it even played a reverse regulation effect based on the the Gini coefficient decomposition results. Specific grant played a weak equalization adjustment effect and the intensity of specific grant during the observation period was uncertain. Financial transfer payment played a strong equalization utility and the intensity during the observation period tended to be stable. The existing financial transfer payment of Shandong Province is more focused on the reducing of the financial differences among the counties of within municipal administrative areas, while the regulation of the financial differences among the various administrative regions is relatively weak.The sixth part puts forward some recommendations from six aspects including the concept of public finances, the scale and the distribution of the transfer payment funds, the structure of transfer payment, the composition of provincial financial differences and the setup of horizontal transfer payment mechanisms to improve the transfer payment system on the basis of the study above.