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From Fiscal Contracting to Tax Sharing: Bring the Two-source Initiative into Play

【Authors】
LV Bingyang & TAI Hang
【WorkUnit】
LV Bingyang (China Financial Policy Research Center, School of Finance, Renmin University of China, 100872)
TAI Hang (Financial Research Institution Post-doctoral Research Center, The People‘s Bank of China, 100800)
【Abstract】

How to give play to the two-source initiative about the central and local governments is critical for building socialism with Chinese characteristics. This paper, through constructing a theoretical model, analyzes the central government‘s influence on local governments’ behavior by adjusting local fiscal decentralization under the constraints of different policy goals. On the basis of theoretical analysis, this paper explores how to bring into play the two-source initiative at the central and local levels during the two periods of fiscal contracting and tax sharing. Besides, this article analyzes the economic foundation and institutional basis for giving play to the local governments’ initiative. That is, as economic development evolves from the primary stage to the advanced stage, the way to bring into play the local governments’ initiative should evolve from fostering the market to providing public services and improving public governance.

 
JEL:E62, H77

【KeyWords】
Two-source Initiative, Fiscal Contracting, Tax Sharing