Frozen in Time: The Much Needed Reform of Expenditures Assignments in China

Abstract

China has been carrying out significant fiscal reforms on intergovernmental fiscal relations for over three decades. However, these reforms have largely concentrated on the revenue side of the budget, and generally have not been coordinated with an explicit strategy for the reform of functional expenditure assignments. Currently, there is large consensus that the weaknesses with the current assignment of expenditure responsibilities have become one of the most serious obstructions -- if not the most serious -- to the further improvement of China fiscal system. In this paper, we provide a comprehensive review of the actual practice with expenditure assignment among different levels of government in China over the past decades. We highlight the most important issues surrounding the current system qualitatively and quantitatively, and provide a road map and practical recommendations for its future reform.