2002年-世界发展银行全球_China_-_National_Development_and_Sub-National_Finance___A_Review_of_Provincial_Expenditures_208页_12mb

Summary of Report No. 22951-CHA: National Development and Sub-National Finance in China

Core Content

This report, prepared by the World Bank, provides an in-depth analysis of the fiscal system in China, focusing on the relationship between central and sub-national governments, particularly at the provincial, prefecture, county, and township levels. It highlights the challenges and inefficiencies in the current system and offers recommendations for reform to enhance public expenditure management and promote equitable development.

Main Policy Issues and Key Findings

A. High and Unsustainable Expenditure Assignments

• Sub-provincial governments (prefecture, county, and township) bear significant expenditure responsibilities, which are not aligned with their revenue capabilities.
• These levels account for 70% of total public expenditure, with county and township levels providing the majority of public services, including 70% of education and 55-60% of health expenditures.
• Local governments are responsible for unemployment insurance, social security, and welfare, which are typically managed by central governments in other countries.
• Expenditure responsibilities have not been adjusted in line with the re-centralization of revenues following the 1994 tax reform, leading to an unsustainable fiscal burden.

B. Growing Regional Disparities

• Fiscal disparities across regions are large and increasing, with the ratio of highest to lowest per capita budgetary expenditures rising from 6.1 in 1990 to 19.1 in 1999.
• The coefficient of variation has increased from 0.55 to 0.86, indicating growing inequality among provinces.
• Even excluding the three municipalities (Shanghai, Beijing, Tianjin), disparities remain significant, with the ratio rising from 3.9 to 6.0.
• The Tax Sharing System (TSS) has exacerbated regional disparities by favoring wealthier regions through tax rebates, while equalization transfers have been insufficient to counterbalance this.

C. High Dependence on Extra-Budgetary Resources

• Local governments heavily rely on extra-budgetary funds (EBFs), which now account for up to 20% of GDP.
• These funds are critical for financing local services and infrastructure, but their use undermines fiscal discipline and distorts incentives.
• The reliance on EBFs creates a significant disparity in resource allocation, reinforcing regional inequalities.

D. Low Efficiency of Sub-National Expenditures

• Local governments suffer from overstaffing and an excessive number of agencies, leading to inefficiencies in public service delivery.
• Personnel costs account for over 70% of total expenditures, with little autonomy to set staffing levels.
• Poor budgetary practices and distorted incentives contribute to inefficiencies in the health and education sectors, including excess capacity, inappropriate care patterns, and cost inflation.

Recommendations

A. Improve Expenditure and Revenue Assignments

• Revise Expenditure Assignments: Consider efficiency, equity, and administrative capacity when determining new responsibilities.
• Realignment of Revenue and Expenditure Assignments: Ensure clear and explicit responsibilities between central and local governments, identifying which level is responsible for regulating, financing, and delivering services.
• Reform VAT and Enterprise Income Tax Sharing: The current system of sharing VAT based on derivation is inefficient and unfair, and should be revised to promote more equitable revenue distribution.

B. Distribute Fiscal Resources More Equally

• Increase Equalization Funding: Allocate more resources to equalization to address disparities in revenue and expenditure needs.
• Modify VAT Proceeds Allocation: Use the portion of VAT revenues allocated to tax rebates as a starting point for increasing equalization efforts.
• Establish Better Administrative Mechanisms: Implement a central transfer mechanism or set central norms for provincial arrangements to ensure equalization.

C. Improve Resource Use Through Better Budget Management

• Enhance Budget Autonomy: Local governments need more autonomy to improve budget management and ensure effective use of resources.
• Integrate Extra-Budgetary Funds: Bring EBFs and off-budget activities under the central budget to enhance fiscal discipline and accountability.
• Promote Comprehensive Reforms: A piecemeal approach to fiscal reform is unlikely to succeed; comprehensive reforms should address the interdependence between revenue and expenditure assignments.

Conclusion

The report emphasizes the need for a comprehensive reform of China's inter-governmental fiscal system to address the inefficiencies and disparities in sub-national finance. It advocates for a more balanced distribution of fiscal resources, improved budget management, and clearer responsibilities between different levels of government to ensure effective and equitable implementation of national development goals.