Deficit estimation and welfare effects after the 1994 fiscal reform in China: Evidence from the county level

Using simple statistical analysis of county-level budgetary data from across all of China's counties, the present paper examines whether the post-1994 fiscal decentralization has affected redistribution at the county-level. The new fiscal system has been less able to narrow inter-county dispersion in fiscal imbalances than the old one, even after taking intergovernmental transfer payments into account. Although with the post-1994 system there has been a modest increase in per capita welfare spending in all counties on average, much of the new-found fiscal resources have been spent on salary and administrative expenses rather than spending on public goods. Therefore, it is imperative that the reform of China's tax system is intensified.