Research On The Reform Of Local Fiscal System In China

Local fiscal system reform is not only a hot sector in financial theory, but also the focus ofworking departments. The tax reform in1994established the relationship between the central and localfinancial allocation through framework of the overall fiscal system. The reform overcame the defects of theoriginal financial system, straightened out the financial relationship between the central and localgovernments and improved the ability of the central government’s macroeconomic control. However, thereform ignores the fiscal relationship between the each level of the local governments. The local fiscalsystem has exposed a series of problems. The county township finance faces aggravating difficulties,growing pressure and burden is passed o local governments. The local governments are in heavy debt andrely on land finance heavily. Obviously, the problems above have seriously hindered the realization ofeconomic transition and social transformation in China.Accordingly, this paper is based on the theory of fiscal decentralization and draw lessons frominternational experience. On the base of the status quo analysis of the current local fiscal system, this papertries to put forward some reform measures to perfect local fiscal system of our country. This paper isdivided into four parts besides the introduction. Based on the theory of division of powers by finance, andpublic goods theory and the transfer payment theory as the theoretical basis, this article put up with someaccording solutions.The second part is the present situation and existing problems of the local finance system in ourcountry. Firstly this paper introduces the evolution of local fiscal system according to the time sequence. Itis mainly divided into three parts: the first stage is from1949to1979. Second is the system of a stove eatsmeal from1979to1993. The reform of tax-division in1994until now is the last stage. The reform processis closely related to the advantages and problems of local fiscal system. Overall, the system reform in ourcountry is not do more harm than good, it greatly promotes the stability of the central and local fiscalrevenue growth, straighten out the financial relationship between the central and provincial, strengthen thecentral government’s macroeconomic regulation and control ability and promote the formation of a unifiednational market. This paper paid more attention to the problems existing in the local fiscal system, mainly reflected in such aspects, unreasonable allocation between the three elements of finance, imperfect systemof transfer payments, and excessive reliance on land finance of local governments.In order to solve the above problem, this paper briefly describes the United States and Japan’sfinancial system reform practice, including the local finance governance scope, responsibility division, thedivision of intergovernmental tax expenditure and intergovernmental relations of transfer payment.Through comparison, the paper organizes some foreign experience and advice, and draw out the basic ideasof perfecting our country’s local financial system.The last part of the article put forward specific measures to solve the problems of local fiscalsystem on the basis of the former three parts. The first requires reasonable division of intergovernmentalpowers, due to the division of duties are decided by the central government, the feasibility of a wide rangeof adjustment is lesser, so this paper continue to use the original framework and put forward someimprovement opinions. To build a perfect system of income in order to provide funding support for thelocal fiscal expenditure is the key step in the reform. To ensure that local governments have sufficientincome, one is to rationally dividing all levels of tax between the different level of governments; the secondis to perfect the local tax system construction in order to improve the proportion of local tax revenue, thethird is to consider allowing local governments to issue bonds to raise financial capital timely, the last is toincrease the government financial capital through a higher level transfer payments from the higher levelgovernment. In addition, this paper also discussed the relevant supporting measures, to promote thecontinuous improvement of the local fiscal system...