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OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

The System of Revenue Sharing and Fiscal Transfers in China

The main features of China’s current sub-national finance arrangements date back to the 1994 tax reform. China has a multi-level government structure that shares national tax revenues through a system of tax sharing and transfers, and divides spending assignments and responsibilities. Local governments have hardly any discretionary power to modify taxation, though they have some non-tax revenue from fees, levies and penalties. They can also spend the profit from the sale of land-use rights subject to central government restrictions. As the 1994 tax reform recentralised revenues and decision-making power, vertical gaps between revenue and expenditure at sub-national levels have grown. In order to accommodate this, the central government has raised the scale of transfers. Over the past decade, China’s transfer policy has addressed the horizontal imbalances and become markedly more redistributive. Nevertheless, fiscal disparities within provinces remain high and are much greater than between regions in OECD countries. The extent of fiscal equalisation within provinces varies, thus affecting the delivery of services. The government’s plan to equalise service provision across the country therefore calls for fine-tuning the transfer system and improving local revenue. Some local governments are testing a residential property tax but not in a form that would substantially raise tax revenue. A significant property tax would tend to lower the revenue from the sale of land-use rights and would, in general, improve the fiscal position of those local governments that already have strong budgets. This Working Paper relates to the 2013 OECD Economic Survey of China (www.oecd.org/eco/surveys/china)

English

Keywords: local government, public finances, land-use rights, service equalisation, intergovernmental transfers, fiscal disparities, China, property taxation, tax sharing
JEL: H60: Public Economics / National Budget, Deficit, and Debt / National Budget, Deficit, and Debt: General; H73: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects; H27: Public Economics / Taxation, Subsidies, and Revenue / Taxation, Subsidies, and Revenues: Other Sources of Revenue; H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government; H74: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Borrowing; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes; H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession; H72: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Budget and Expenditures; E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy; H52: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Education; H71: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Taxation, Subsidies, and Revenue; H61: Public Economics / National Budget, Deficit, and Debt / National Budget; Budget Systems; R52: Urban, Rural, Regional, Real Estate, and Transportation Economics / Regional Government Analysis / Regional Government Analysis: Land Use and Other Regulations; D63: Microeconomics / Welfare Economics / Equity, Justice, Inequality, and Other Normative Criteria and Measurement; H51: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Health; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies including sales and value-added (VAT)
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