Study On Equalization Transfer In China

Intergovernmental transfer plays an important role in fiscal system. As the unique formula-based transfer, equalization transfer is irreplaceable in promoting fiscal revenue equalization in China.In this paper, we summarize and analyze the distribution method of equalization grants from central government to local governments. We find some improvements both in its target and formulation. It pays more attentions to providing basic public services than financing salaries for workers of governments. The calculation of standardized expenditure is based on the population that needs the services rather than the number of workers for government sectors. And the expenditure is classed by its function. The calculation of standardized revenue has no fundamental change. The formulation becomes more rational,detailed and maneuverable. It contains more services that should be provided by the government. Meanwhile, it recognizes that the costs for providing public services are discrepant between different districts.Through the panel data regression of per capita equalization grants between central government and provincial governments from2000to2007, we find that equalization grants do not dramatically reduce the sub-national disparities in China. The regions with stronger fiscal capacity tend to receive more equalization grants. As a part of standardized fiscal revenue,standardized budgetary revenue has a positive impact on equalization grants. And the impact of generalization transfer is not dramatical. The provinces with more workers fended by fiscal capital receive more equalization grants because of the fact that the formulation between2000to2007calculates the standardize fiscal expenditure using the number of governmental workers.According to the analysis,we find that equalization transfer system is improved during this years. But it still has some problems that should be solved.