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Assessment of Local Public Finance Performance in China When Undesirable Fiscal Phenomena are Taken into Account
Author(s) -
Zhang Shujian,
Zhang Jun,
Chen Shiyi
Publication year - 2012
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2012.12003.x
Subject(s) - decentralization , public finance , china , economics , work (physics) , data envelopment analysis , finance , public sector , local government , economic policy , financial system , macroeconomics , business , public economics , political science , public administration , market economy , economy , mechanical engineering , mathematical optimization , mathematics , law , engineering
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.