Author(s)

Cao Haitao, Wei Qin

Corresponding Author

Wei Qin

Abstract

This paper analyzes China’s local government debt against a backdrop of fiscal decentralization. Tax-sharing system (TSS) reforms gave rise to an imbalance in the revenue and expenditure of local governments. As a result, local governments rely heavily on extra-budgetary funds for local economic conditions. The reform of extra-budgetary funds makes local government investment dependent upon bank credit, fueling local government debt. To address the global financial crisis (GFC), a tremendous economic stimulus program was instated. This has worsened the local debt problem. The fiscal reforms over 2014-2016 mainly focused on local bonds issuance and the re-allocation of local expenditure responsibilities, but failed to adjust the local revenue mechanism. Hence the local debt problem persists.

Keywords

China, Intergovernmental fiscal relations, local government debt, local fiscal revenue system