The evolution of Chinese fiscal decentralization and the impacts of tax reform in 1994

During the last two decades, fiscal decentralization has been a critical co mponent of economic reform in China. The decentralization includes a series of fiscal arrangements, which not only involved the devolution of governme nt authority from the central government to the lower-tier governments, but also introduced fiscal incentives for the local governments. The implement ation of new tax system in 1994 affected incentives of local governments, a nd it created some new problems in the inter-governmental relations in Chin a. The focus of this paper is mainly on the following three issues: (1) How has the relationship between the central government and the local governme nts been changed? (2) What are the incentives for the local governments in the decentralization? (3) What are the effects of this new tax arrangement? The goal of the paper is only to give a brief summary of the fiscal decent ralization in China.