اصلاح مالیاتی روستایی و ظرفیت استخراج دولت های محلی در چین

China's fiscal arrangement in the 1980s has preserved local governments' incentive but the 1994 fiscal reform recentralized revenues. Since then, farmers' tax burdens have risen steeply and become a major challenge to the state legitimacy. How to account for the huge regional variation? Why were some localities able to tax more heavily than others? Based on a national survey of village governance in China, we examine farmers' burdens empirically and identify political and social factors that explain the local governments' ability to tax farmers. This paper suggests that developments since the 1990s have shown that it overstates local discretionary power and does not pay enough attention to societal forces in understanding local public finance.

Tax is the lifeblood of a modern state. Without sufficient revenues, the state cannot finance its basic functions and win popular support. Excessive taxation, however, dissipates regime legitimacy quickly and results in state failure (Cheibub, 1998 and Levi, 1988). Oppressive taxation and peasants' uprisings have been common under the Chinese dynastic rule and many empires crumbled as a result of popular rebellions (Bernhardt, 1997). In the 1990s, excessive taxation reemerged in China's countryside. In addition to formal taxes, local governments charged exorbitant levies and fees on rural households. In some cases, farmers' financial burdens reached as high as 20–30% of their already low incomes (Chen, 2003). Many agricultural regions have developed a vicious cycle: to secure tax collection, local governments recruited more staff members; an enlarged local bureaucracy in turn required more revenues and collections (Chen, 2003 and Yep, 2004). Excessive taxation and farmers' burdens have become a major source of grievance in China's vast rural areas. Farmers brought their complaints against their local governments to higher levels of the administration, including the central government, the court, and also the pubic media. In many incidences, frustration with these formal and bureaucratic channels pushed desperate farmers into direct confrontation with local authorities (Bernstein and Lu, 2000 and O'Brien and Li, 2005). The central government, fearful of the damage to its legitimacy, responded with a series of tax reform policies starting in 2000. The first step, known as the “tax-for-fee” reform, converted some legitimate local fees into one unified agricultural tax. The new tax rate was raised but local governments were prohibited from levying new fees. In 2004, the central government took a bolder move and started to phase out the century-old agricultural tax on farmers. In the long sweep of Chinese history, this was a rare, if not unprecedented, instance of rescinding any obligation of the farmers to the state. Ultimately, the central leadership aimed to restore its political legitimacy and to reign in local state's excessive extraction of farmers. Like many policy changes in China, implementation can be a major challenge. Have farmers' burdens fallen as a result? Did tax reforms achieve their intended targets? To answer these questions, we examine local state's extractive capacity. Why is there a regional variation in extraction rate and how can some local governments extract more resources than others? In 2005, we conducted a national survey of rural governance with particular attention to the financial aspect of it. As a result, we have collected systemic data about farmers' monetary burdens. The empirical test confirms some key hypotheses we have developed. Rural tax reforms initiated by the central government have indeed alleviated farmers' overall financial burdens — on average, the burdens were cut by more than half — but the pattern becomes more complicated and also more fascinating when we break them down into two components. In accordance with the central directives, local state did scale down agricultural taxes (i.e. the first component) very significantly. The other component includes various informal extractions, such as irregular fundraisings and fines, which local governments were able to maintain as a source of revenue, despite efforts made by the central government to minimize them. Local governments' extractive capacity in this area, however, was checked by two factors: the ability of farmers to resist and the development of informal organizations in villages. This paper contributes to the literature on fiscal federalism. Some political economists argue that China's rapid economic development can be explained by local governments' pro-growth policies. China is a unitary state but it adopted a quite unique fiscal system in the 1980s. The central government signed contracts with local governments and specified a fixed amount or a fixed ratio of revenue submissions. Beyond that, local governments could keep the surplus and had full discretion in spending. This financial incentive encouraged local officials to promote economic growth in their jurisdictions and maximize their budgetary incomes. These scholars believe that China has become a de facto fiscal federalism (Blanchard and Shleifer, 2000, Oi, 1992, Montinola et al., 1995 and Jin et al., 2005). Instead of sorting and matching emphasized in the traditional fiscal federalism theory, this new analysis brings economic growth to the front and expands the scope of the theory. Our discussion of farmers' burdens shows that local governments have acquired some autonomy and a delicate bargaining characterizes the central–local relations. But the fiscal federalism argument may have overstated local discretion in China. In the 1980s, the central government respected local discretion most of the time but things started to change in the 1990s. As a result of fiscal contracting, the central share in government revenues dropped. This resulted in the fiscal recentralization in 1994 which gave the central government a larger share in total revenues, including 75% of VAT. Enterprise income tax and personal income tax were initially assigned to local governments. When they grew unexpectedly fast in the following years, the central government forced local governments to give up half of them in 2002. In the meantime, the central government unloaded a lot of spending responsibilities onto local governments. To finance these unfunded mandates, local governments had to exact levies from farmers in the countryside. The rise of farmers' burdens demonstrates the lack of discretionary power (both revenues and expenditures) on the part of local governments. As will be elaborated toward the end of the paper, our research does not support the other extreme of an omnipotent center either. To ensure efficient provision of local public goods, the central government has left certain bargaining room in a highly centralized state. The fiscal federalism argument has also understudied a major source of constraint local governments must face in revenue collections. Rules regulating central–local fiscal relations undoubtedly affect local governments' ability of revenue maximization. After the reform, the Chinese society has regained some vitality and started to constrain the hands of the state. In studying rural taxation, we found that local governments' extractive capacity depended on the extent to which local society collaborated with local authorities. In localities where the mass and cadres have developed high tensions, local officials had trouble mobilizing revenues. On the other hand, in places where self-governing organizations have developed a capacity for public service provision, local governments were relieved of certain financial burdens. These findings provide a more nuanced picture of state–society relationship in China and enrich the single-dimensioned (i.e. intergovernmental) focus in fiscal federalism (Hansen, 2008 and Tsai, 2007). The rest of the paper proceeds as follows. The next section analyzes the governance structure in rural taxation and explains the rise of farmers' burdens, especially after the fiscal recentralization in 1994. Section 3 develops three institutional hypotheses to explain local governments' extractive capacity. The data from our national survey and empirically tests are discussed next. The conclusion addresses some implications of this study for rural financial challenges and the overall rural governance.

Farmers' burdens in the early 2000s have become a serious challenge threatening local public finance in China. Based on a national survey, we show that the rural tax reform has indeed reduced tax burdens in rural China. However, almost all of the tax reduction can be attributed to the lessening of taxation with central permission. There was very little reduction in the amount of taxation beyond central permission. In some regions local governments even carried out more local fundraising activities and charged farmers high administrative fees to compensate for the revenue shortfalls. In addition to the central–local dimension, local governments' taxation power was checked by its relationship with the society. Farmers' resistance has undermined local governments' capacity to extract funds illegally. And rural self-governing organizations helped to reduce farmers' burdens by becoming a substitute for certain functions of the local government, like providing public goods. According to some scholars, China's local governments have acquired a lot of discretion in local public finance. Our study suggests that the central state is still capable of directing local governments to serve its own interest. The rise of excessive taxation can be seen as a consequence of fiscal recentralization and imposition of unfunded mandates in the 1990s. The reduction of farmers' burdens further indicates the authority of the center. After all, China is a unitary state and the central government still holds a lot of power in deciding fiscal matters of the country. However, the continuing existence of illegitimate fundraising activities also reveals the limit of the seemingly powerful state. The toleration of administrative fees may be the center's strategy to get local governments onboard the agricultural tax reform. It also showcases the central leadership's fundamental dilemma in managing local public finance. A fully centralized fiscal system does not work well in a country with tremendous regional heterogeneity. Efficiency requires the central government to accept local discretion in revenue extraction and public service provision. Our study of rural taxation captures the complexity of the central–local dynamics in China and warns against any simplistic portrayal of an omnipotent central state or totally runaway local states. For non-China scholars, China provides an excellent opportunity for comparative case studies. Despite the myth about absolute power, dictators must exercise their authority through agents, many of which have different interests and have the discretion to modify the policy from below. This perspective of power can shed light on the discussion about power as well as explanation of institutional changes in other authoritarian regimes. This paper also emphasizes the importance of adjusting local state–society relations in China's rural governance. Self-governing organizations in the rural areas have played a substituting role for local public goods provision in some localities. Encouraging community organizational development should be an important component of further rural governance reform in China. But, as Tsai (2007) has argued, the role of community organizations in providing within-village public goods was usually limited. By substituting formal state apparatus, these organizations may actually lead to an undersupply of local public goods in the village. This effect became more pronounced in the aftermath of the rural tax reform. Many villages have reported cutting back teachers' salaries and consolidating primary schools in rural areas. This will likely offset the political gains from abolishing rural taxation (Qu, 2005). For the time being, the central government has been channeling financial resources from the central budgets to compensate for the revenue shortfalls. However, merely increasing the transfer of funds may not be sufficient to create the incentive for local government to provide the needed public services. In another word, the fundamental problem with local taxation is not that local governments extract resources, but how it is done. In the long run, a better functioning local governance in China necessitates much wider and more meaningful participation by both expanding the local democracy and by promoting the developments of grassroots informal organizations. From this perspective, strengthening democratic institutions at grassroots level — that is, village and township elections — may have the greatest potential of bringing accountability to local public finance. With electoral pressure, local leaders should also have incentive to listen to rural residents and provide adequate public goods in their jurisdictions.