Rebalancing, taxation and governance: Fiscal policies for sustainable growth

Abstract

The Fiscal Responsibility System (FRS) relied on incentives to unleash an investment and growth potential that has transformed China since the early 1980s. However, the structural changes led to a fiscal crisis by the early 1990s, and the 1993/4 fiscal reforms were intended to create modern instruments and institutions for national taxation and redistribution. These were needed to consolidate the FRS. We argue that both additional tax reforms particularly at the local level, as well as strengthened oversight on the sources and uses of funds at all levels, are needed with the administrative progression model used in China, to ensure accountable governance, and sustainable and inclusive growth in the future.