Local Government Organization and Finance: China
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transfers are important mainly because of mismatching revenue and expenditure assignments in the current fiscal system. The current intergovernmental transfer system is primarily oriented toward filling the gap. A greater degree of expenditure decentralization coupled with a high degree of tax centralization create vertical fiscal gaps for lower levels of government. In 2003, local governments received 45.4 percent of total fiscal revenues, and their expenditures (mainly concentrated in the county and township levels) accounted for 70 percent of total expenditures. In fact, 47 percent of total local expenditures were financed by intergovernmental transfers in 2003. Specifically, 47, 45, and 58 percent of local expenditures were financed by intergovernmental transfers for provincial, prefecture, and county and lower-level governments, respectively. Table 4.10 shows transfers as a percentage of total local expenditures for different levels of government in 2003. Intergovernmental transfer is the least transparent area in China’s fiscal system. According to the budget process defined by the Budget Law, the lower-level governments submit the approved budget to the higher-level governments and so on to the central government, and the central budget is the last one to be approved. Consequently, the intergovernmental transfer for subnational governments is unknown until the budget of the central government is approved. Apparently, the local budget is not able to take account of intergovernmental transfers; consequently, such transfers are difficult to track through budgets. According to a report by the state audit bureau, only 27 percent of total intergovernmental transfers from the central government were reported in provincial accounts. The Ministry of Finance is not the only department that determines the size and allocation of intergovernmental fiscal transfers. Several
T A B L E 4 . 1 0 Transfers as a Percentage of Total Expenditures of Levels of Government, 2003 Transfer as a percentage of total expenditures Level of government (consolidated)
Provincial Prefecture County and lower Source: Data from Ministry of Finance of China.
Average
Maximum
Minimum
47 45 58
92 98 100
25 15 10
