Intergovernmental Fiscal Relations and Macroeconomic Management

Abstract

The evolution of central-local fiscal relations has been the most important element of China’s decentralization process over the past 15 years. It is widely agreed that fiscal decentralization has provided local governments with enormous incentives and fiscal powers to develop local economies and regional competition under the decentralized system has encouraged policy innovations at the local level. This chapter, however, will focus on the impact of fiscal decentralization on the central government’s ability to achieve macroeconomic objectives, an area that has been paid insufficient attention but that is of extreme importance.