ABSTRACT
The existing literature on China’s fiscal policies presents a contrasting picture of the government’s fiscal situation. Some literature suggests that the Chinese government is fiscally sound. The ratio of government debt to GDP is low. Central government is able and willing to increase its fiscal transfer to local governments and its budgetary appropriation to fundamental education and health care – policy areas which are mainly financed by local governments in both China and many other countries. It spends handsomely on the Western Development Project to reduce regional disparities, and abolishes agricultural taxes to reduce the peasants’ tax burden. Other literature suggests that local officials are predatory; they violate regulations on fee and tax collection and impose exorbitant fees on peasants. The reasons for the problems are plentiful: corruption and the personal greed of individual local leaders, the lack of effective democratic control and the local governments’ need to balance their budgets, service their debts, support unfunded mandates and meet the payroll bill for the unwieldy bureaucracy.
