The Influence Of The Province-Managing-County Fiscal System Reform On Compulsory Education Spending At The County Level

The compulsory education fiscal system is born inside government fiscal system in China. Since the founding of new China, the compulsory education fiscal system had seen many changes with the transformation of economic system and the reform of public finance. The compulsory education fiscal system is displayed by the "relying mainly on county" and the new mechanism of the rural compulsory education. County-level governments in China hold heavy responsibility for compulsory education. However, the country’s self-financing capacity is not optimistic and economic growth benefits need to be strengthened, so it difficult to shoulder the responsibility of compulsory education for county-level governments.One way to resolve county-level fiscal situation is the Province-Managing-County Fiscal System Reform (PMC). The focus of the reform is to enlarge the counties’ fiscal power and economic management authority. The reform cancels cities’fiscal jurisdiction over counties in "city managing county"’(CMC) system and establishes direct contact with provincial government and county-level governments. The aims of this reform are:strengthening the county economy, enhancing administrative efficiency, ensuring fiscal distributive relationship of governments at different levels, improving the public financial systems and balancing urban and rural development. On the one hand, the reform will free the constraints from city; on the other hand, provincial government will strengthen fiscal support to counties and hold back county’s revenue by city.A number of studies have demonstrated that PMC can enhance the fiscal capacity of county-level governments. But what kind of impact does PMC have on compulsory education spending at the county level? It’s a key point of this paper. This paper studies this problem based on the data of Jiangsu province. Through this research, it was found that:1) county-level fiscal ability improved gradually with the going on of reform, but the county-level financing gap was widening and the productive infrastructure investment was accelerating, meanwhile, the results show that counties given additional fiscal autonomy tend to spend a lower share of their annual expenditures on public education than before;2) the PMC had more negative impact on regular counties than county-level cities;3) counties under PMC tended to spend a lower share of their annual expenditures on public education at the beginning of reform and then increased fiscal supply of compulsory education many years later. One reason to explain this phenomenon is that GDP oriented achievements appraisal indicator for local government officials prompts them to invest more funds into infrastructure investment other than education. Because of the county-level governments’limited financial resources, fiscal transfer payment is essential. Especially after PMC, provincial government must take more responsibility. However China has not built scientific and reasonable system of transfer payments. So, this paper tries to build a transfer payment model based on education supply and demand for Jiangsu province. After calculation, this model can improve the imbalance between different counties. To solve the problem, the suggestions are:1) straighten out the fiscal relationship between provinces and counties;2) build perfect transparent mechanism of education budget:3) improve the government performance appraisal system;4) improve the system of compulsory education transfer payment.The thesis is organized as follows:the first chapter is the foreword which introduces research background, research questions, literature review, core concepts, innovation and inadequate analysis; chapter two introduces the changes in the financial institutions and education financial system:chapter three uses the empirical analysis to discuss the Influence of the PMC fiscal system reform on compulsory education spending at the county level; chapter four offers a transfer payment model for compulsory education; chapter five discusses problems in PMC and give policy suggestions.