Vertical Fiscal Imbalance,Transfer Payment and Local Government Governance

Accelerating the construction of modern fiscal and tax system helps not only free local governments from the shackle of the“competition for growth”development model,but also improve the governance capacity of local governments and realize the good governance of the country in the long term.Firstly,based on the typical fact of Chinese-style fiscal decentralization,this paper theoretically interprets the multiple channels and influencing mechanisms among vertical fiscal imbalance,transfer payment and local government governance.Secondly,it constructs a comprehensive index system to measure the governance capacity of local governments.The result shows that local government governance is relatively low in capacity and slow in improvement,and displays obvious regional heterogeneity.Then,the paper chooses structure and scale of transfer payment as mediator to construct the panel simultaneous equation model,and uses the three-stage least squares estimation(3SLS)for empirical investigation.The study finds that first,both the scale and structure of transfer payment may significantly affect local government governance,but the direction of the effects is opposite;second,the intensified vertical fiscal imbalance and the increase of transfer payment in scale can significantly inhibit local government governance,but the optimization of transfer payment in structure can significantly improve the governance;third,vertical fiscal imbalance not only directly inhibits the improvement of local government governance,but indirectly impedes it through the scale and structure of transfer payment.

Tax Sharing and Fiscal Imbalances:Reconstruction of the VAT Sharing System in China

Unreasonable distribution of regional fiscal revenue may lead to fiscal imbalance,while narrowing the fiscal gap will help to establish a modern fiscal relationship between the central government and local governments with fi nancial coordination and regional balance.This paper examines the 2016 VAT sharing reform to study the impact of tax sharing on fiscal imbalances,and puts forward a new plan to reconstruct the VAT sharing ratio.It has been found out in the study that the VAT sharing reform has alleviated the vertical fiscal imbalances caused by the reform of“replacing business tax with VAT”to some extent,but has aggravated the horizontal fiscal imbalances and widened the regional fiscal gaps.The deepening of horizontal fiscal imbalances is due to the aggravated differentiation of regional fiscal capacity after the VAT sharing reform.The adjustment of the principle on which the VAT is levied and the way by which it is shared is conducive to reducing interregional fiscal imbalances.This research is of reference to rationalizing the intergovernmental fiscal relationship,which is helpful to further clarify the implications of modern intergovernmental fiscal relationship and promote the construction of a modern fiscal system.