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Chapter 18

ECON 336 Naughton - Chapter 18.docx

3 Pages

Economics (Arts)
Course Code
ECON 336
Christopher Green

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Chapter 18 Macroeconomic Trends and Cycles - China has been able to navigate around the large macroeconomic pitfalls that normally plague transitioning economies such as those in the former soviet union 18.1 Trends in National Saving - Chinese saving rates were high under the planned economy and remained high after reforms. -Under the planned economy SOEs did nearly all the saving. Household savings were very low. -After reforms household savings increased dramatically. Reasons for this are listed below 1. Income Growth Accelerated. 2. Working-age households had less security in old age (Only one child now). 3. Household investment opportunities exploded. -As a result of the increasing importance of savings in GDP, the banking system, through its lending decisions, increasingly held the key to macroeconomic stability. 18.2 The Fiscal System and Fiscal Reform - Before 1978 the government raised revenue from SOE profits; there was no real tax policy. -The most important Fiscal Reforms came in 1994 when the government made the tax structure very similar to the West implementing a VAT on manufactured goods. (75% to Federal and 25% Provincial) 18.2.1 Revising Fiscal Erosion -After 1994, budgetary revenues increased dramatically and went towards the civilian economy. 18.2.2 Broadening the Tax Base: Horizontal Equity Horizontal Equity= The theory stating that people in the same income bracket should be treated the same way. It’s a basic measure of whether tax burdens are fairly distributed. -The VAT helped broaden the base and lower the complexity (sorry for changing it Alex. :P) 18.2.3 Restructuring Central-Local Relations -After 1994 Central government collections, as a share of GDP more than doubled while local collections dropped by half. -Today, 20% of central government collections are transferred to local governments. 18.3 The Fiscal System Today -While the central government got itself in shape, the fiscal system in the countryside is still a mess. 18.3.1 Intergovernmental Fiscal Relationships: Principles -China faces problems with its large intergovernmental finance and the technical capacity and administrative capabilities. -China’s expenditures are surprisingly decentralized with the local governments spending the most. 18.3.2 Inadequacy of Local Government Revenue in Rural Areas - Unfortunately the rural governments don’t have access to the same type of tax incomes as other areas since only the central government
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