2006年-世界发展银行全球_The_Fiscal_Framework_and_Urban_Infrastructure_Finance_in_China_54页_410kb

Summary of "The Fiscal Framework and Urban Infrastructure Finance in China"

Core Content

This working paper analyzes the impact of China's fiscal framework on urban infrastructure finance, focusing on the evolution of fiscal policy since the 1970s and the resulting fiscal disparities at different levels of government.

Main Points

1. China's Economic and Urbanization Growth

• China experienced rapid economic growth, averaging 9.4% GDP growth between 1978 and 2004, far exceeding the global average of 2.8%.
• Urbanization increased from 17.9% in 1978 to 40.5% in 2003, leading to a significant rise in urban infrastructure demand.

2. Urban Infrastructure Finance Challenges

• Despite rapid urbanization, urban infrastructure development has lagged behind the pace of economic growth.
• Urban infrastructure financing was historically reliant on the fiscal budget, but fiscal capacity constraints at lower levels of government have led to increased borrowing, raising financial risks.

3. Fiscal System Evolution

• Pre-reform (before 1980): A highly centralized fiscal system where all taxes and profits were collected by the central government and then redistributed to local levels.
• Fiscal Contracting System (1980–1993): Introduced revenue-sharing mechanisms, giving local governments more autonomy to manage their budgets. This led to a decline in the central government's share of total revenues and increased regional fiscal disparities.

4. 1994 Tax Assignment System Reform

• A major reform aimed at rationalizing the tax system, centralizing revenues, and making fiscal transfers more transparent.
• Key objectives:
  • Simplify and rationalize the tax structure.
  • Increase total fiscal revenue-to-GDP ratio.
  • Increase the central government's share of total revenues.
  • Shift to a more objective revenue and expenditure assignment system.

5. Revenue Assignment After 1994

• Central government collects major taxes like import tariffs, consumption taxes, and income taxes from SOEs.
• Sub-national governments are responsible for local taxes such as business tax, personal income tax, and land value increment taxes.
• Shared revenues include VAT (central 75%, local 25%), stamp taxes on security exchange (50%-50%), and resource taxes.

6. Transfer Systems

• Tax Rebating System: Introduced to compensate sub-national governments for revenue losses. It is based on incremental revenue growth relative to 1993 base-year receipts.
• Standardized Transfer System: Introduced in 1995, based on a formula that calculates transfer payments based on standardized expenditure and revenue. It has grown but remains smaller than tax rebating.
• Earmarked Grants: Used for specific purposes like income distribution adjustment, minority areas support, and rural fee and tax reforms. These grants have increased significantly over time.

7. Transfer Payment Trends (1995–2004)

• The tax rebating system remains the largest component of transfer payments.
• The standardized transfer system has grown in importance but is still insufficient to address fiscal disparities.

8. Fiscal Disparities in China

• Regional fiscal disparities have widened significantly, especially between eastern and western provinces.
• The disparity coefficient increased from 1.069 in 1995 to 1.24 in 2003.
• Examples:
  • In 2001, Shanghai had a per capita fiscal capacity of RMB 3776, while Guizhou had only RMB 262.6.
  • In 2003, the gap was even larger, with Shanghai at RMB 5179.59 and Guizhou at RMB 321.85.

9. Mismatch Between Fiscal Capacity and Responsibilities

• Lower-level governments (counties and townships) bear significant service delivery and social welfare responsibilities but have limited fiscal capacity.
• The central and provincial governments have retained most of the revenue, exacerbating the fiscal burden on lower tiers.

10. Limited Sub-National Autonomy

• Despite some decentralization, sub-national governments still face significant constraints in fiscal autonomy.
• The multi-layer budget system allows each level to manage its own budget, but the lack of clear fiscal responsibilities and limited revenue sources hampers effective local governance.

Key Information

• Fiscal Reforms: The 1994 tax assignment system reform was a turning point in China's fiscal system, shifting more revenues to the central government.
• Transfer Systems: The current transfer system includes tax rebating, standardized transfers, and earmarked grants, but it has not effectively reduced fiscal disparities.
• Fiscal Disparities: Regional and hierarchical fiscal disparities have grown, with the central and provincial governments collecting most of the revenue while lower levels bear the costs.
• Urban Infrastructure Finance: The paper highlights that urban infrastructure finance is underfunded due to the fiscal system's structure, which has not kept pace with urbanization and economic growth.
• Future Reforms: The paper suggests that future reforms should expand the standardized transfer system relative to tax rebating and earmarked grants to improve fiscal equity and local autonomy.

Conclusion

China's fiscal framework has evolved significantly since the 1970s, with the 1994 tax assignment reform marking a major shift towards centralization. While this reform aimed to improve transparency and efficiency in fiscal transfers, it has not adequately addressed regional fiscal disparities. Lower-level governments, especially counties and townships, face increasing fiscal burdens due to their responsibility for service delivery and social welfare, while having limited revenue sources. These challenges have implications for urban infrastructure finance, as local governments struggle to fund necessary development. The paper recommends a more balanced approach to fiscal transfers to ensure sustainable urban infrastructure growth and equitable fiscal management.