By Meng Chun, Department of Macroeconomic Research, Development Research Center of the State Council (DRC)

Research report No 63, 2014 (Total No 4562)

Summary:

Separating power in a scientific way and making power commensurate with expenditure responsibility are an important part of a modern fiscal system and are the direction that reforms of finance and tax systems must take. But, there is a vague, unreasonable, non-standard separation of government powers from expenditures responsibility at all levels that results in overlapping government functions and inefficiency. The country needs to change its governmental power and expenditure responsibility, at the central and local level, keeping information asymmetry, incentive compatibility, public goods, and supply efficiency in mind.

The separation of power and expenditure responsibility is not just a fiscal issue but one that is related to governance, one that matters in the overall situation, and one that requires national legislation. First, we need a scientific definition of the separation government and markets, and the basis of power and expenditure responsibility at all levels. Second, we need to improve the separation of inter-government revenues and transfer of payments to finally arrive at a scientific, standardized system where government power is commensurate with expenditure responsibility.