Research On The Beform Of Local Fiscal System In China

Through the Tax Distribution Reform in1994, China established a basic frameworkfor tax distribution for central and local governments, rationalized fiscal distributionrelations and initially set up a mechanism to ensure stable growth of fiscal revenue. But thereform did not make specific provisions for the provincial and lower financial system,failed to establish a financial allocation framework among governments lower thanprovincial levels, which objectively caused the inadequacies of the tax-sharing system inChina. After the reform of tax-sharing system, all local governments in accordance with thebasic patterns and principles of the central provincial revenues, combined with the localsituation, implementation of the management system of tax distribution system to lowerlevels of governments. With the economic development and deepening of the reform offinancial and taxation systems, problems faced by local governments gradually becameapparent, conflicts between tax distribution system which is based on the separation oftax and the division of power have emerged, the problem of "authority moves down,financial power moves up" has become increasingly prominent, grass-roots financialdifficulties increased. These problems are rooted in the imperfect fiscal decentralization andthe inadequate tax reform. As the local economy continues to grow, Chinese localgovernments are taking a bigger proportion in local public goods and services supply, atpresent, local governments accounts for50%of the fiscal revenue and80%of fiscalexpenditure; in addition, with the improvement of people’s educational level, local demandfor public goods and public services will become more and more and thus local governmentpublic spending will continue to grow. So it is urgent and necessary to continueimprovement and standardization of local financial institution. This perfects fiscaldecentralization between central and local governments as well as local governments atvarious levels of the financial system, and ultimately make income collection rights matchexpenditure responsibilities, gradually achieve fairness of basic public services.This article starts from Chinese current financial system, through the means ofdescription of local governments’ financial power, income powers, expenditures duties andstatus of government transfer payment, refers to the experiences from United States,Germany and Japan, utilizes financial decentralization theory and tax distribution theory, from the breaking point of status of local fiscal expenditure, this paper analyses Chinesecurrent local government financial system,plus this paper briefly analyze some problemsemerged in tax system. Based on predecessors’ research, this paper analyze the challengesfaced by the distribution reform, brings up the concept of "expansion of the cities andcounties simultaneously" etc, explicitly cut the responsibilities between various levels ofgovernments and distributes reasonable financial power to meet up with the expenditureneeds., with the support of transfer payment, we will realize the goal of fair distribution ofpublic service supply This paper mainly consists of four parts:Part Ⅰ is Introduction. This section introduces the research background andsignificance of the article, and combing and overview the Chinese and foreign research onlocal financial institutions and fiscal decentralization. Now, most of the experts andscholars generally believe that China’s local fiscal system should continue normativedeepen the reform of the tax distribution to make up for the legacy of1994—the tax systemreform of the financial system at the provincial level and the following local government isnot standardized. Most domestic scholars believe that China’s financial system, is lack ofefficiency compared with the majority of the world’s three-tier government system withthree fiscal system, has too much financial level, and China should Cancel "City tubeCounty" to reduce the financial level, implementation of City and county at the same level,and continue to promote the government management system" flattening ". In the study ofpower and financial power, many scholars believe that China should be graduallyrealization of the tax system in line with international standards, levying of property tax,resource tax, inheritance tax, increasing main taxes of the local government to increasethe financial resources of local normative, gradually reduce the non-standard non-taxrevenue; Furthermore,it’s time to divide the powers between the local governmentrationally, changing the current situation of the mixed segregation of duties between thegovernments at all levels. In order to enhance transparency, scholars have always thoughtthat should continue to legalized and standardized the Transfer payments. Finally, point outthe innovation and inadequacies of this study.Part Ⅱ is the analysis of the status about the local financial system. This section ismainly discourse and analysis the origin and status of the current revenue-sharing,.theExperience of China’s local fiscal system reform, the size and composition of the local government revenue and expenditure, the inadequacies exist in the system, to give the basisargumentation for policy recommendations section; at this part also cited a analysisbetween Zhejiang and Jiangxi which has the different revenue-sharing structure; in the endof the part compare and analysis the main approach and problem of the current transferpayments system.Part Ⅲ is the international comparison of the local financial system. This section byintroducing the implementation of the local tax-sharing system of developed countries,suchas federalism country United States, Germany, and the unitary central government Japan, tolearn the experience of division between of spending-responsibilities and property-incomerange, combined with the situation of our country present perfect recommendations for thereform of the local financial system.Part Ⅳ is the specific recommendations to improve the local financial system. Thissection is mainly aimed at the problems of our current local tax system, through thediscussion and analysis between the second and three parts, put forward rationalizationsuggestion of the Reform and Consummation.