Local Government Finance Development Index: System And Method

In1994, the implementation of the reform of the tax system is the first time in thehistory of new China that established the financial relationship with the spirit of theintergovernmental fiscal federalism. Like most Chinese reform, this is an obviouscompromise reform with a gradual color.Improving the core aim of "two proportion"obscures a decentralization system that should have the same powers of division andmany other aspects of requirements. In the past twenty years, the central fiscalrevenue accounting for the proportion of total fiscal revenue increased vertically. Theimbalances between central and local finance appears day by day.Then theintergovernmental transfer payment has gradually become an important institutionalarrangement for the current system.Normative and effective transfer payment system depends on the accuratejudgment to the financial development of the ability of local government. Since1995the establishment of transitional transfer payment methods, in the practice of financialreform, for more attempts to measure and evaluate the financial capacity of the localgovernment code, accurate and intuitive approach has not stopped. However, up tonow, there is still lack of a widely persuasive conclusion. The difficulty lies in theunderstanding of the local finance development theory and how to construct ascientific and complete index system and evaluation method.This paper is an attempt to break the traditional problems.Based on the analysisand definition of the local financial development level connotation.This papersummarizes four factors that influence the local government financial developmentand constructs the local government financial development level index system. Inthree aspects of income, expenditure and performance, the paper selects the economicenvironment, sustainable, public services, fiscal rules, fiscal equalization and fiscalperformance six characterization factors into construction, using DEA model and thefactor analysis method to process the related data. The development of local financeindex is given, for visually and dynamically determining the local government financial development level. The paper thinks that, only the financial developmentlevel of the local government can be systematically and clearly presented and becomea common prerequisite for approval of the two levels of government, a standard andeffective transfer payment system can really form.