Study On Local Government Budget Discretion In China

The budget is playing more important role in the governance of local government. This paper observed rigid and excessive discretion gradually weakened China local government budget management ability.Budget discretion refers to the government can make the financial policy arrangement and make decision about the allocation of resources according to financial and economic goals change. Financial policy arrangement and resources allocation are two important parts in the budget process. To be a responsible and successful government, requires complete financial policy arrangement and resources allocation in the budget year and not outside the budget process.If the government decides "what to do" or "do what", are decided by the legal budget procedure itself, rather than made in the budget process, the budget is "discretionary".Over budget rigid refers to if budget resources in the process of configuration be used for a specific project or a particular institution,it will appear long time curing,this appearance can make this part of the resources that hard to used to other more strategic priority on purpose or institutions. The cause of over rigid including legal expenses, form a complete set of special expenditure and base method, etc.The present budget management system focus on inputs rather than outputs and performance, too much emphasis on the control functions of budget. Financial resources cluster to the central and local tax system is not perfect that cause fiscal power up and administrative authority down. Over rigid on budget can’t only use capital efficiently but also need more and more capital fixed on.Over budget discretionary refers to the lack of necessary legal constraints of budget allocation discretion. To meet with the new demand, local government tries to find capital outside the system with heavy fiscal burden. Local governments pay more attention to GDP ignoring the democratic participation. The increasing budget revenue makes the local governments have a strong motivation to spend more. The local governments balance the budget with government debt which expands the deficit. All these caused budget management difficulty, brought the explicit and implicit financial risk.For local governments, over discretion embodies out of fiscal discipline and the total amount control, over rigid cannot reflect the allocation of resources and results based on the strategic priorities. Over rigid makes the limited financial resources cannot accurately reflect the focus of the government policy and priorities, a large number of financial resources is wasted; the efficient use of public spending low;Budget allocation of resources lack of policy efficient, lack of democratic participation, ignore the constraints than flexible, attaches great importance to the process rather than outcome.Over discretion can cause arrangements and use in budget out of control and resources waste, even cause rent-seeking and corruption.It needs management flexibility to gain the budget policy. The first problem puts too much weight on budget control and the second one expands the affect of budget policy.To achieve a balanced control between control and policy functions urgently can solve the contradiction between these two problems. Rigid constraint on today and soft constraint on tomorrow are important balance to local government.Chinese government has taken a series of reform to optimize the allocation of financial resources and strengthen fiscal discipline since 2000: the department budget, single treasury account and centralized payment, the government procurement system, two lines of revenue and expenditure, comprehensive budget, and so on. The reforms only focus on the technical level, and the confliction between rigidity and excessive discretion still exist.We should establish appropriate budget system and the implementation mechanism to break the rigid of budget management, given more flexibility and right space on budget management, activate the redistribution of budgetary resources to provides more choices to our national governance.The paper tried to find a feasible way to local government public budget reform from the balance of budget flexibility and restrictive. The paper also tried to solve three key problems:1) In what sense and what extent, budget control and budget discretion is necessary and appropriate?2) What is the shortcoming of over rigid and excessive discretion in practice.3) How to balance budget flexibility and restrictive?Based on the hypothesis of economic man, public product theory, the public choice theory, new public management theory, the principal-agent theory and the theory of fiscal decentralization, combining theoretical and empirical, comparative analysis and normative analysis, qualitative analysis and quantitative analysis, case study and field survey, practice in developed countries, the paper researched on the local government budget discretion thoroughly and pointed out the correction mechanism of budget management of excessive rigidity and discretion.The main conclusions are:1) Budget management is the core and key of government governance.2) rigid and excessive discretion gradually weakened China local government budget management ability.3) The local government budget management capacity, depending on that complete the policy making and resource allocating in the formal budget process.4) The proper local government budget discretion scale means that local governments can arrange the budget resources according to the policy targets and strategic priority ranking, cut the budget for the most optimal project along with economic development trend and the financial and economic changing.5) Given more right to local government discretion to establish a correction mechanism to improve the over rigid and discretion budget.Innovation:There are a few domestic researches on budgetary rigidity and discretion conception, the relationship, characteristics, influence factors and correction mechanism. The paper estimated the scale and trend of local government budget discretion by quantitative research method. The paper took the Inner Mongolia Autonomous region as a case study to provide a reference and constructive theory on improving the government budget management system.Shortage and prospect:Some questions are still not clear and need to be further studied in the future, as the current material and other conditions limited. The questions include:1) Further studies are needed to define the scope and amount of our local government budgetary discretion.2) The empirical estimates in the paper weren’t precise.3) It need revise when the local government budget basic data and statistical caliber changed.4) Economics theory still has some limitations in practice. The paper used the government budget theory and public finance theory which is developing, therefore, the micro framework of budget discretion theory needs to be further strengthened.5) Chinese present macro economic environment and the budget management is changing, and there are diversity exists in budget management reform theory, so the correction mechanism in the paper may not perfect in the practical application.