Evolution of Central-local Fiscal Relations in China

摘要

From 1949 to 1979, under the centralized planned economy, the central government had comprehensive power to control local governments in terms of all fiscal policies. After embarking on the open-door reform, revenue contract system was replaced by a fiscal planned system,whose key feature was to constitute of central fixed taxes, local fixed taxes and shared taxes. This led to a weakening of the fiscal ability of central government. In order to raise these two ratios and to enhance central government fiscal authority, a tax-sharing system was introduced in 1994. For the first time, tax collection was administered separately according to rules of tax sharing system. More importantly, the tax-sharing formula was built the base of a rulebased system which included a mix of tax assignments and tax sharing. Under the tax sharing system, the central government collected more revenues and recentralized fiscal system once again.