Central and Local Government Relations in Asia
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Central and Local Government Relations in Asia

Achieving Fiscal Sustainability

Edited by Naoyuki Yoshino and Peter J. Morgan

Sustainable and inclusive growth in emerging Asian economies requires high levels of public investment in areas such as infrastructure, education, health, and social services. The increasing complexity and regional diversity of these investment needs, together with the trend of democratization, has led to fiscal decentralization being implemented in many Asian economies. This book takes stock of some major issues regarding fiscal decentralization, including expenditure and revenue assignments, transfer programs, and sustainability of local government finances, and develops important findings and policy recommendations.
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Chapter 7: Key issues of central and local government finance in the People’s Republic of China

Qichun Zhang and Shufang Li

Abstract

Fiscal decentralization has been established in the People’s Republic of China (PRC), but crises emerge at the local government level due to remaining problems of the fiscal administration system of tax allocation and the impact of replacing the business tax with a value added tax. The PRC taxation system requires readjustment and local governments have begun to focus on innovative financing models. The main path to stable and sustainable government finances is to maintain the general public budget and the government fund budget. The present chapter shows that use of innovative fundraising and financing channels will lead to the upgrading of local government infrastructure and public services. Suggestions for enhancing local government fiscal stability and sustainability include: reducing the fiscal burden at the local level by standardizing and legalizing outlay establishing a modern taxation system; establishing a standardized and predictable transfer payment system by introducing block transfer payments and prioritized transfer payments as a basis for a stable growth mechanism for general transfer payments; promoting public–private partnership legislation to encourage participation of social capital and maximize the multiplier effect of public expenditure; and improving the mid-term budget and debt-annexed budget and establishing a government planning mechanism for investment and debt financing of major infrastructure construction projects.

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