Research On The Reform Of Local Government Financing System

The expansion of the financing demand of local government and the grim situation of local government debt risk are reflections of the status that local government financing system is not adapted to the local development. According to Local Governance Theory and Decentralization Theory, the reform of separating powers from central to local and from government to market is beneficial to the improvement of the public’s enthusiasm. Considering the area of financing, the application of the two theories mentioned above will promote the decentralization of local government financing system. In order to study the reforms of Chinese local government financing system thoroughly, several steps were taken:At first, the paper introduced the history of the reforms of local government financing system, finding these reforms in fact were decentralization. Then, the paper elaborated the present situation of the system. The establish of local financing system was a symbol of a fact that local government is enhancing the decision-making power in financing. However, many issues that existed in traditional financing system still exist now, so the reform cannot be accomplished at one stroke. The experiences of the developed countries, such as America, Japan and England, are significant to the reform of Chinese local government financing system. The system of bond financing and Public-Private-Partnership Model have great potential in China. Finally, guided by the Local Governance Theory and Decentralization Theory and incorporating foreign experience the with China reality, the paper gave three suggestions, which were promoting the decentralization from central to local, perfecting the scheme of local government financing system and encouraging the utilization of PPP.