Local tax system, intergovernmental transfers and China's local fiscal disparities

In this paper, we explore the underlying factors shaping fiscal disparities at the county level in China. Using a data set containing budgetary figures for all county-level jurisdictions from 1994 to 2000, we derive trends of county-level fiscal disparities. In addition, we develop a coherent framework to assess the impact of the local tax system and the intergovernmental transfer system on fiscal disparities after the introduction of a tax-sharing system. To be precise, we decompose overall fiscal disparities using the method proposed by Shorrocks [Econometrica 50 (1982) 193-211] and extended by Tsui [Journal of Comparative Economics 26 (1998) 783-804]. Journal of Comparative Economics33 (1) (2005) 173-196.