Intergovernmental Fiscal Reform in China

IMF Working Papers, April 13, 2018

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Intergovernmental Fiscal Reform in China

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Bibliographic details

• Authors: Philippe Wingender
• Published: April 13, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484351109.001

Overview and Context

• China is the most decentralized country in the world in terms of expenditures shares, with subnational governments responsible for 85 percent of government spending.
• Limited revenue autonomy and insufficient intergovernmental transfers have led to large unfunded mandates and a build-up of debt outside the budget.
• The government has recently announced an ambitious intergovernmental fiscal reform, which will increase the role of the central government.
• Comprehensive reform is needed to improve public service delivery, increase overall social spending levels and reduce regional disparities.
• Revenue reforms are necessary to improve efficiency and reduce vulnerabilities from excessive subnational borrowing.
• These reforms are challenging, but are crucial so that the government can support China’s continued development and prosperity.

Key Findings

• Subnational governments account for 85 percent of government spending.
• Current arrangements have produced:
  • Large unfunded mandates.
  • A build-up of debt outside the budget.
  • Insufficient intergovernmental transfers.
  • Limited revenue autonomy at the subnational level.
• Policy objectives of the announced reform include:
  • Increasing the role of the central government.
  • Improving public service delivery.
  • Increasing overall social spending levels.
  • Reducing regional disparities.
  • Improving revenue efficiency and reducing vulnerabilities from excessive subnational borrowing.

Policy Recommendations and Reform Priorities

• Implement comprehensive intergovernmental fiscal reform to:
  • Rebalance expenditure responsibilities and revenue assignments between central and subnational governments.
  • Strengthen intergovernmental transfers to address unfunded mandates.
  • Enhance revenue autonomy where appropriate to improve efficiency.
  • Contain and reduce off-budget and hidden subnational debt.
  • Raise social spending levels and improve risk pooling to reduce regional disparities.

Content in this bundle

• Intergovernmental Fiscal Reform in China, WP/18/88, April 2018
  • Intergovernmental Fiscal Reform in China, WP/18/88, April 2018 (Markdown version)
  • Intergovernmental Fiscal Reform in China, WP/18/88, April 2018 (PDF)