Intra-provincial Revenue Sharing and the Subnational Government's Fiscal Capacity in China:The Case of Zhejiang Province

摘要

This study investigates whether the tax-sharing system has deteriorated the fiscal capacity of subnational governments by analyzing how fiscal revenues are divided between provincial and sub-provincial governments.Our study of county-level fiscal data from Zhejiang Province in China during 1994-2007 shows that intra-provincial revenue-sharing rules favor county governments in two ways:(i) they improve county governments'fiscal autonomy in terms of using their own revenues;and (ii) they enhance county governments'fiscal capacity through province-to-county general transfers.In addition,we find that intra-provincial fiscal revenue-sharing rules and transfers reduce fiscal disparity between counties.