On Fiscal Equalization Effect Of Intergovernmental Transfer Payments In China

The existing intergovernmental transfer system in China was set up during fiscal system reform in 1994. It has played an important role in coordinating the relationship between central government and local governments, achieving central government's goal and promoting fiscal equalization between different districts. Recent years, directed by the theory of building harmonious society, China has proposed fiscal goal of public service equalization time after time. Public service equalization requires fiscal revenue equalization, and intergovernmental transfer payment is the most important way of achieving that. It is meaningful to studying the fiscal equalization effect of intergovernmental transfer system so as to guide the perfection of existing intergovernmental transfer system.This article tries to use econometrics method to analyze provincial fiscal equalization effect of intergovernmental transfer system in China. Through penal data regression of per capita provincial fiscal revenue (relative to average) before and after transfer payments between central government and provincial governments from 1995 to 2005, we draw statistic to measure the provincial fiscal equalization effect of intergovernmental transfer system, and we find that transfer payments dramatically reduce the disparity of provincial fiscal revenue. By further study of the statistic, we find the equalization effect is improved year by year, which is connected to the change of the structure of transfer system. Moreover, we find the transfer system has taken account of different economic development status in eastern, middle and western provinces, and provides different equalization effect for provinces in different areas. According to data availability, we divide transfer payments into two parts: transfer from central government and transfer to central government, we analyze their equalization effect respectively and our conclusion is transfer to central government has a stronger equalization effect than transfer from central government. We also study the time trends of provincial fiscal revenue before and after transfer payments, we find that the increasing equalization effect of transfer just offsets the increasing disparity of provincial fiscal revenue before transfer, which means the disparity of provincial fiscal revenue after transfer mainly remain the same over the years. At last, according our result, we give advice on the improvement in the intergovernmental transfer system in China.