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Web of Proceedings - Francis Academic Press
Web of Proceedings - Francis Academic Press

Intergovernmental Fiscal Relations and Local Government Debt in Transitional China: After the Tax-Sharing System Reform

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DOI: 10.25236/icemeet.2023.054


Cao Haitao, Wei Qin

Corresponding Author

Wei Qin


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.


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