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  • Public Goods Provision and Rural Governance in China
  • Sato Hiroshi (bio)

Introduction

The widening urban-rural disparity in public goods provision is one of the most crucial issues to be settled in building a harmonious urban-rural relationship in China. It is noteworthy that the Chinese central government has recently developed both a series of pro-rural policies to strengthen intergovernmental fiscal transfer and to increase public expenditure on peasants’ needs, and rural taxation reform to reduce the burden of taxes and levies on peasants.1 This article, using a large administrative village survey and official fiscal statistics at the county level, examines the influence of this rural taxation reform on public fund allocation for local public goods.

Important background for this issue is the multi-layered fiscal and administrative system in rural China: central — province — prefectural city/prefecture (dijishi/diqu) — county (xian) — township (xiangzhen) — administrative village (xingzhengcun).2 Within this multi-layered structure, we focus on the administrative village and county levels because these two levels are generally seen as responsible for current issues of public fund allocation. Administrative villages have no formal public budget because they are regarded as self-governing communities, not as a formal governmental apparatus. However, administrative villages provide local public goods such as primary education and public health. Villages with their own revenue sources have collected little money from villagers for financing public services. By [End Page 281] contrast, villages with no revenue sources have to depend on levies and fees collected directly from villagers. Consequently, there have been huge disparities among villages in terms of both the size of village expenditures for public services, and villagers’ financial burdens. To address this problem, recent rural policies have emphasised the financial responsibility of the county government for local public goods provision. Nevertheless, administrative villages remain important as both complementary providers of public goods, and the interface between local needs and upper level administration.

The main data source for this article was a large administrative village survey conducted in the spring of 2003 in collaboration with the rural household survey organised by the Chinese Household Income Project. The reference year is 2002 (hereafter referred to as the 2002 CHIP Survey).3 The sampling frame for the 2002 CHIP survey was a sub-sample of the official rural household survey of the National Bureau of Statistics (NBS). The stratified sampling of the NBS rural household survey followed two steps. First, sample administrative villages were selected in each province according to income level, and second, sample households (generally ten households) were chosen from each sample village. From approximately 6,820 villages (68,190 rural households) surveyed by the NBS rural household survey of 2002, our sub-sample includes 961 villages distributed across 122 counties in 22 provincial-level administrative units (number of sample villages in parentheses): Beijing (16), Hebei (37), Shanxi (40), Liaoning (45), Jilin (48), Jiangsu (44), Zhejiang (53), Anhui (44), [End Page 282] Jiangxi (43), Shandong (63), Henan (53), Hubei (52), Hunan (45), Guangdong (53), Guangxi (40), Chongqing (20), Sichuan (50), Guizhou (40), Yunnan (26), Shaanxi (37), Gansu (32) and Xinjiang (80). Through this administrative village survey, we collected data on village budgets for 2002 and 1998, as well as other demographic and socioeconomic data. The year 1998 was set as the reference year to represent the period before the rural taxation reform. Because the data are based on official village documents, we believe that data for both 1998 and 2002 are basically reliable.

Overview of Pro-rural Reforms After 2000

Table 1 summarises the process of rural taxation reform and related reforms in the 2000s. The process of rural taxation reform can be divided into the following three phases: Phase 1, tax-for-fee reform (2000–3); Phase 2, gradual abolition of agricultural taxes (2004–5); and Phase 3, post agricultural tax era (2006 onwards).

The basic policy in the Phase 1 reform was “tax-for-fee” ( feigaishui), that is, the substitution of local levies collected at the village/township levels with formal taxation. The peasants’ burden of taxes and levies was to be reduced through this process.4 In 2000, Anhui Province was designated the national model area of the reform. In March 2002...

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