| Fiscal system is usually composed of the arrangement of intergovernmental expenditure responsibility, the attribution of intergovernmental revenue and the vertical and horizontal balance of intergovernmental financial resources, with the features of stability, standardization and equity. The reason why the policy makers and scholars give fiscal system so long-term concern, is that it's the only carrier of the central and local governments fiscal decentralization in the performance of financial functions such as resource allocation, income distribution and stabilization of economic development. Since the founding of our country, the fiscal system can be divided into two stages. The first stage is from the founding of our country to 1980, in which a highly centralized mode formed, and all levels of local financial resources mainly centralized upward; the second stage is after 1980, when the real hierarchical fiscal system was implemented—before 1993, it was the contract system in all its forms, and since 1994, the tax-sharing system was implemented. The tax-sharing system reform in 1994 achieved a major breakthrough in the reform of intergovernmental fiscal system, which initially established a fairly standard basic taxation system to adapt to the socialist market economy system, mobilized the enthusiasm of each aspect, markedly enhanced government financial strength; enhanced the central control ability, promoted regional coordinated development; strengthened and improved the government's macro-regulation, inhibited overinvestment to a certain extent; strengthened the local financial budget constraints, enhanced the local governments' initiative and autonomy of revenue and expenditure management. Prime Minister Zhu Rongji and Wen Jiabao have both appraised highly of that, and its positive role also stood the test of time and practice more than ten years. Limited to the particular stage of historical development at the time and the urgency of reformation timing, the tax-sharing system reformation in 1994 focused on straightening out the financial allocation of central and local governments. However, the division and standardized operation of administrative and financial authority of local governments at and below the provincial level were not involved too much. In the guidance of the general idea—"increments adjustable, stocks fixed, dual systems parallel, and gradually put in place", the provinces take a variety of fiscal systems "at and below the provincial level", with the obvious features of transition, and some contradictions and problems need to reform and improve, which are right the focuses of the paper.The paper goes over the theories of fiscal system reform at and below the provincial level, including reasonably defining the function scope between market and government, dividing the administrative and financial authority between the central and local governments, even among local governments in all levels, promoting the democratization of financial management etc., and summarizes some typical practical experiences abroad. On this basis, it mainly researches the following issues: First is about the problems of the current fiscal system at and below the provincial level. New and old system parallel—according to the rule of new and old system gradual transition of the central government, while the fiscal systems at and below the provincial level operate in accordance with the new system, they still withhold part of distribution pattern of the old system. Vertical distribution of financial resources is unbalanced—after the central and provincial tax-sharing fiscal system framework was established,according to the requirements of implementing tax-sharing system of central government, the provinces established the tax-sharing system at and below the provincial level. With time passing by, fiscal revenue and expenditure proportion has been increasing asymmetric between provincial-municipal level and county and township. County and township have bared higher expenditure but have no more financial resources to match. The quality of local financial revenue is not high—with the implementation of the decentralized policy and the acceleration of reform process, non-taxable income scale at and below the provincial level is growing rapidly; especially, since the tax-sharing system reform in 1994, the finance is more difficult, and non-taxable income proportion becomes higher at basic level. Basic public services is disequilibrium—in basic education, social security, public health, infrastructure construction and other fields, public service system is not uniform, and difference of public service standard is bigger among different areas and different groups, between city and countryside. Transfer payment system at and below the provincial level is imperfect—the problems including imperfect legal system, unscientific method for calculating, overemphasis on income growth and ignoring of the expenditure management motivation, and need for transfer payment mode optimization etc., all raise necessity to undertake transfer payment system reform.Second is to discuss the necessity of reform. Since the tax-sharing system reform, "up shifting of financial resources focus and moving down of administrative authority focus" has led to the financial difficulties at basic level, influenced the economic and social coordinated development. So the fiscal system at and below the provincial level should be reformed. Intense regional economic development competition, acceleration of urbanization process and perfection of the urban infrastructure construction, etc., require reform of fiscal system at and below provincial level based on clear division of administrative authority among local governments. In our country, grassroots governments with weakest financial strength provide most of the basic public service, which leads to the situation of "small horse draws cart", and the strength does not equal to the ambition. Therefore, to accelerate the equalization of basic public service urgently requires reform of fiscal system at and below the provincial level.Third is to analyze the guiding principle of reform—persevering in reform, arousing the local governments'initiative at all levels to improve public services and efficiency, and strengthening the financial functions of public service delivery. Fourth is to explore the basic path of reform—scientifically determine the function boundary between market and government, clarify responsibilities taken by the central and local governments, then rationally divide the administrative authority among local governments in provincial, city and county level. On this basis, to accelerate the reform of fiscal system at and below the provincial level, the direction is to insist on the tax-sharing system. Under the objective conditions of too many government hierarchical levels, too less tax categories, and no standard tax sharing among the governments in five levels, to undertake the system with financial strength sharing as the core, tax sharing as priority, tax categories sharing as auxiliary is the inevitable choice. According to the principle of "standard and transparent, overall balance and performance evaluation", the paper goes over the goal and mentality of transfer payment reform, confirms the reform mode of "vertical transfer payment as priority and horizontal transfer payment as auxiliary" to promote further matching between financial resources and administrative authority, and better ensure equal access to basic public service.Fifth is to discuss the supporting measures of fiscal system reform at and below the provincial level from the aspects of administrative system reform, improving the performance evaluation system, enhancing government performance management and promoting democratic financial management etc.
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