THE FISCAL POLICY FRAMEWORK IN CHINA

In the last decades important economic and social changes occurred in China. In particular, in introducing a socialist market economic regime, the fiscal policy framework has been significantly reformed. In order to understand China’s fiscal policy framework, it is necessary to review its experience, the present economic and social situation and its perspectives. Section 1 describes the Chinese fiscal system, Section 2 assesses the role played by fiscal policy in macroeconomic control and regulation, Section 3 reviews fiscal regulation in practice and Section 4 discusses the experience drawn from it. The last section sketches a rough outlook of the fiscal policy. 1 The tax system 1.1 The sharing of revenue and expenditure between government tiers China has adopted a tax sharing system, whereby revenues are divided between the central government and local governments. The central government is responsible for expenditure on national defence, foreign affairs, and central government agencies, economic reforms, coordination of regional development and macroeconomic adjustment. The jurisdiction of the local governments covers the running costs of local departments, and expenditure on economic and social regional development. Following the principle of matching tax jurisdiction with expenditure responsibility, taxes are divided into three categories: national taxes, local taxes and joint taxes (i.e. taxes shared between the central and local governments). National taxes are used, inter alia, to ensure macroeconomic stability; local taxes fund regional spending whereas joint taxes are mainly devoted to economic development. The system is illustrated in detail in Table 1