Urban Bias Revisited: Evidence from China's Fiscal Policy Reforms

Abstract:     
This paper argues that the Chinese central government has fully abandoned the previous policy of an urban bias in resource distribution. Party doctrine for much of the Maoist era sought to take the economic surplus from the countryside and use it to feed the industrialization of the urban areas. In the immediate post Maoist period, each locality was assigned fixed revenue targets by the government and was able to keep any surplus, allowing many non-urban areas to rapidly grow wealthy (sometimes at the expense of urban areas).

In 1994, the central government recentralized revenue collection and began to redistribute the funds collected as grants to various local governments. This new fiscal power again allowed the central government to dictate whether China would have a pro- or anti- urban policy. Using statistical data from the Ministry of Finance, I argue that China now has, if anything, a pro-rural fiscal policy. The implications of this finding touch on issues of democratization, interest group power, and distributional politics.

Number of Pages in PDF File: 44

Keywords: China, political economy, fiscal policy, urban distribution, rural distribution, state society

JEL Classification: H77, H30, H23

working papers series