This paper provides quantitative and qualitative assessments of the equalization impact on regional fiscal disparities of the current fiscal transfers system in China. It also discusses the main problems with the design of transfers and the options for their reform. In particular, by using provincial level data for the period 1995–2011 and county level data for the period 1995–2005, we document the trends in own revenue disparities across and within provinces and analyze how the different types of fiscal transfers have affected these two types of disparities. The paper also examines how expenditure disparities have translated into disparities in service provision and simulates the additional amounts of funding needed from equalization grants to bring the less well-off provinces to the country average for service provision.
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