China's 40 Years of Fiscal and Tax Reform: A Basic Trajectory

• Date: 01 March 2018
• Published date: 01 March 2018
• DOI: http://doi.org/10.1111/cwe.12238
• Author: Peiyong Gao

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 94–106, Vol. 26, No. 2, 2018

94

China’s 40 Years of Fiscal and Tax Reform:

A Basic Trajectory

Peiyong Gao*

Abstract

The present paper describes the trajectory of China’s fiscal and tax reform in the

past 40 years, which can be summarized in five phases. The reform commenced with

“decentralizing power and transferring benefits.” Then, under great fiscal pressure,

institutional reform was instigated, which aimed to establish a new scal and tax system.

To regulate the government revenue and expenditure beyond the fiscal and tax system,

reforms were put in place to build an institutional framework for public nance. As the

scal and tax reform had gradually entered the more sophisticated phases, China took a

series of measures to further improve the public nance system. Since 2012, based on the

overall plan of comprehensively deepening reform, China has embarked on establishing

a modern public nance system. The present paper characterizes China’s scal and tax

reform as gradually moving toward a system that aligns with the overall reform and

complements the goal of marketization and modernization of state governance.

Key words: China, scal and tax reform, public nance

JEL codes: H70, O53, P30

I. Introduction

Forty years have passed since China started its scal and tax reform, which has closely

accompanied the steps of the country’s overall reform and opening up. The complexity of

the problems, the tortuousness of the road, the gravity of the mission, the profoundness of

the changes, and the greatness of the accomplishments involved in China’s scal and tax

reform have rarely been seen in global history. It is of great importance to systematically

summarize the practices of China’s reform and opening up, including its scal and tax

reform, by highlighting the right moves it has taken and clarifying the basic trajectory,

in order to relay China’s economic stories. Furthermore, the generalization is, in itself, a

theoretical innovation and contributes to economic theory.

Based on reform targets in different periods, the process of China’s scal and tax

*Peiyong Gao, Senior Fellow, Institute of Economics, Chinese Academy of Social Sciences, China.

Email: gaopy@cass.org.cn.