Assessment of Local Public Finance Performance in China When Undesirable Fiscal Phenomena are Taken into Account

20 Pages Posted: 7 Dec 2012

See all articles by Shujian Zhang

Shujian Zhang

affiliation not provided to SSRN

Jun Zhang

Fudan University - China Center for Economic Studies (CCES)

Shiyi Chen

Fudan University

Date Written: November‐December 2012

Abstract

Making use of the data envelopment analysis (DEA) technique and taking undesirable fiscal phenomena into account, this paper comprehensively quantifies the public finance performance of local governments in China during the course of fiscal decentralization reform. The introduction of undesirable fiscal outcomes into this assessment makes it possible to identify meaningful and informative characteristics of local public finance performance in China. When reforms are first implemented, local public financial performance improves because undesirable fiscal phenomena have not yet become too serious. The tax sharing system reform did not work well in its early stages, and negatively impacted public expenditure efficiency. The reform started to play a substantial role between 2001 and 2005, when local governments experienced better public finance performance. Corresponding to the deterioration of the financial sector in recent years, local public financial performance worsened after 2007. Further reform of the current fiscal and taxation system is necessary in China, to ensure a brighter future for the nation.

Keywords: efficiency scores, fiscal decentralization, local governments, public finance performance, undesirable outputs

JEL Classification: H11, H76, H83

Suggested Citation

Zhang, Shujian and Zhang, Jun and Chen, Shiyi, Assessment of Local Public Finance Performance in China When Undesirable Fiscal Phenomena are Taken into Account (November‐December 2012). China & World Economy, Vol. 20, Issue 6, pp. 82-101, 2012, Available at SSRN: https://ssrn.com/abstract=2186291 or http://dx.doi.org/10.1111/j.1749-124X.2012.12003.x

Shujian Zhang (Contact Author)

affiliation not provided to SSRN

Jun Zhang

Fudan University - China Center for Economic Studies (CCES) ( email )

China

Shiyi Chen

Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China

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