Guanghua Wan and Juzhong Zhuang
Jacques Silber and Guanghua Wan
Impressive Accomplishments or Incomplete Achievements?
Edited by Jacques Silber and Guanghua Wan
Ziying Fan and Guanghua Wan
Since the Tax Sharing Reform in 1994, the local government revenue of the People’s Republic of China (PRC) has faced downward risk problems. This chapter reviews the fiscal and taxation reforms in the central and local governments of the PRC and focuses on evaluating the effectiveness of fiscal transfers. We find that, to a certain extent, fiscal transfers significantly promote the construction of local infrastructure. Earmarked transfers had an effect, but lump-sum transfers did not. Results showed every 1 percent increase in earmarked transfers to be associated with a 5 percent increase in local spending on infrastructure. These fiscal transfers also increased the size of local government spending such that a 1 percent increase of fiscal transfer would increase the ratio of local fiscal spending to gross domestic product by 1 percent. The risk of the local fiscal revenue sources was also assessed, and results showed that land finance, local government bonds, and fiscal transfers from the central government are not sustainable in the long term. The local fiscal system in the PRC needs to focus on improving local taxes in the future, such as the property tax.
Satya R. Chakravarty, Nachiketa Chattopadhyay, Jacques Silber and Guanghua Wan
Given a poverty line, a person who is non-poor (poor) currently may not be treated as non-poor (poor) in a vulnerable situation. This chapter looks at the impact of vulnerability on the poverty line. The poverty line is adjusted in the presence of vulnerability such that the utility of a person at the current poverty line and that at the adjusted poverty line become identical. Using an additive model of vulnerability, it is shown that if the utility function obeys constant Arrow–Pratt absolute risk aversion, then the harmonized poverty line is a simple absolute augmentation of the current poverty line. On the other hand, under a multiplicative model of vulnerability with constant Arrow–Pratt relative risk aversion, the revised poverty line is a simple relative augmentation of the current poverty line. The chapter contains empirical illustrations which assume that constant relative risk aversion applies to countries involved in the Asia-Pacific region. Upward adjustment of the poverty line under increased vulnerability, as captured through the value of the risk aversion parameter, is also observed.