Some consequences of fiscal reliance on extrabudgetary revenues in China

The central and especially the local governments in China have become increasingly dependent on extrabudgetary revenues (EBRs), which, by 1996, were more than half as large as tax revenues. These many thousand fees and levies are mainly ad hoc and disparate exactions that generate microeconomic inefficiencies and counter economic growth and can become sources of corruption. Regressions on a panel of provincial data indicate that the EBRs fall most heavily on the primary producing sectors, which are mainly agricultural. The regressions also suggest that dependence on these fees has also turned health and education public goods into fee-for-service sectors. (C) 2003 Elsevier Science Inc. All rights reserved.