Adrian Brona

We (Jonathan Elkobi, me) are happy that @chinaquarter has accepted our new piece “The End of Fiscal Autonomy. ” Yes, it’s provocatively titled but this is an important data point for analyzing China’s economy. A large literature suggests that local autonomy, including fiscal “federalism” has been a key ingredient to growth and local reform initiatives. If local governments literally have little to no autonomy, their incentives and ability to use local initiatives to generate growth also declines. Below, I summarize our findings with link of pre-pub version at the end. Quick primer: Chinese budgeting is broken into 1. ordinary budget to finance public services, civil service salaries and 2. Extra budgetary fund (EBF) used to finance land acquisition/sale, infrastructure projects and other discretionary spend. The source of the problem is here—ordinary revenue at the local level has grown very modestly over a 6-year period (21%), while EBF revenue (land income) has not grown at all due to the property crackdown. Central transfers made up the bulk of the growth in non-debt sources of income for local governments. (1/N)