Title: Evaluation and Comparison of Fiscal Budget Governance Capacity of Local Governments in China: An Empirical Study Based on Provincial Data from 2011 to 2017
Author: Liu Shuming Yu Yan Shiyu
Units: College of Finance and Public Economics, Shanxi University of Finance and Economics, College of Management, Gansu Agricultural University, Department of Finance of Shanxi Province
Issue: Journal of Fiscal Science, No. 1, 2020
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This paper selects provincial-level data from 2011, 2014 and 2017, and evaluates and compares the financial budget governance capabilities of provincial-level local governments in China using factor analysis and cluster analysis. The results show that: First, from the overall perspective of the whole country, the financial budget governance capacity of provincial local governments is generally weak, but the overall financial budget governance capacity of local governments is improving or improving. Second, the status of fiscal budget governance capacity is affected by a variety of factors; factors such as budget support, budget revenue, budget expenditure, budget implementation efficiency and social order show obvious differences between provinces and regions. Third, the financial budget governance capacity has a certain relationship with the geographical distribution, and the budget governance capacity of most provinces in the east and west is relatively good compared with that in the central provinces. Fourth, the ability to govern the fiscal budget is not directly related to the level of economic development. The level of economic development in western provinces is generally low, but due to the strong financial support of the central government, the budget governance capacity is not at the lowest level. Fifth, the difference in the fiscal budget governance capacity of local governments is decreasing, and the areas with the lowest level of fiscal budget governance capacity are decreasing year by year. Based on this, focusing on the overall goals and requirements of establishing a modern fiscal system, we will continue to improve the local fiscal budget governance system and further improve the ability of local governments to manage fiscal budgets.
Keywords: local finance budget governance capacity factor analysis cluster analysis
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Introduction and literature review
From the perspective of national governance, the fiscal budget is not only the main tool for implementing macroeconomic regulation and control, but also the core content of the national governance system (Zhang Ping, 2017). Since the reform of the tax-sharing system, with the deepening of the reform of the fiscal and taxation system, China's fiscal budget system has been continuously improved and has played an increasingly important role in local governance. The report of the Nineteenth National Congress of the Communist Party of China pointed out: "Establish a comprehensive, standardized, transparent, scientific, and constrained budget system, and comprehensively implement performance management." Budget performance management needs to turn money from a power into a responsibility (Liu Shangxi, 2019). Modern budgeting is a kind of public governance activity of the state, and as an important part of national governance, it is ultimately to safeguard the public interest. The establishment of a framework system for modern public governance is an important breakthrough in the reform of the fiscal and taxation system in the future (Xu Zhengzhong, 2018). In the systematic structure of government governance, government budget governance constitutes the core and key of modern fiscal governance (He Wensheng, 2018). In this paper, the ability of local government budget governance refers to the ability of provincial local governments (provinces, autonomous regions, and municipalities directly under the central government) to effectively allocate financial resources in the budget process.
Based on the basic position and important role of the budget in national governance and economic and social development, the budget issue has always been an important part of fiscal research. With the rise of Western public governance theory, the issue of fiscal and budget governance has also attracted widespread attention from public administration scholars. The study of budget governance has completed the transformation from fiscal revenue and expenditure planning to government control tools to budget resource allocation, and also focuses on exploring the paths and strategies to improve the government's budget governance capabilities from the perspective of public governance.
Li Dongyan (2011) believes that the budget determines a country's governance capacity and is the core and foundation of the national financial system. Tang Dapeng and Wang Lulu (2017) conducted an in-depth study on government internal control from the level of fiscal governance and the level of financial governance. Ma Wenjing (2017) and Hao Yufei (2018) believe that fiscal governance is a new way of financial management. In recent years, the problems and improvement ideas of local government budget performance have been studied in depth. He Wensheng et al. (2018) found that there are many problems in local government fiscal budget governance, such as imperfect top-level design, incomplete application of performance results, and irregular budget management, and the goal of modernizing fiscal budget governance should be achieved through many measures such as improving the budget management system.
Foreign scholars have also studied budget management from different perspectives. Irvine Lapsley (2015) emphasizes budget management starting with the internal transparency of government budgeting. Andrew Goddard (2016) acknowledges that the development of rules and regulations alone is not sufficient to successfully implement budgetary and national preventive mechanism reforms and that a comprehensive understanding of the nature of the internal and external environment should be undertaken. Winnie O· Grady (2017) argues that organizations can take changes to go beyond budget and understands those changes as adaptive performance management models to explain the way organizations become more adaptable beyond budget. Ida Bagus Putu Purbadharmaja (2018) believes that the allocation of regional budgets to improve public services and develop infrastructure will increase the region's economic development capacity.
The research of scholars at home and abroad is of great significance for comprehensively analyzing the budget governance of local governments in China. However, most of the research results focus on the performance management of government budgets, and there are relatively few studies that comprehensively explore the evaluation of government budget governance capabilities. From the perspective of research methods, the current research focuses more on qualitative analysis, and there are relatively few quantitative research results based on empirical analysis. On the basis of referring to and drawing on relevant research results at home and abroad, this paper attempts to select a series of quantitative indicators as a whole and systematically, adopt a combination of qualitative and quantitative methods, scientifically evaluate the status of local financial budget governance capabilities, and propose effective strategies to improve and enhance local fiscal budget governance capabilities.
Conclusions and recommendations
(1) Conclusion
In this paper, factor analysis method and cluster analysis method are used, and indicators and data with strong reference are selected as much as possible, and the local financial budget governance capacity of 31 provinces (autonomous regions and municipalities directly under the Central Government) is comprehensively evaluated. The following main research conclusions were drawn: First, among the 31 provinces (autonomous regions and municipalities directly under the central government) in the country, the distribution of T-scores of budget governance capacity below 50 points: 19 provinces (autonomous regions and municipalities directly under the central government) in 2011, accounting for 61.3%; in 2014, 21 provinces (autonomous regions and municipalities directly under the central government), accounting for 67.7%; in 2017, there were 17 provinces (autonomous regions and municipalities directly under the central government), accounting for 54.8%. The above results reflect that, as far as the whole country is concerned, the financial budget governance capacity of provincial local governments is generally weak, but the overall financial budget governance capacity of local governments is improving or improving. Second, the status of fiscal budget governance capacity is affected by a variety of factors, and the impact of the total budget support force factor, budget revenue quality factor, budget expenditure quality factor, budget implementation efficiency factor and social order maintenance factor on the financial budget governance capacity shows obvious differences between provinces. Third, the development of fiscal budget governance capacity has a lot to do with geographical distribution, and the budget governance capacity of most provinces in the east and west is better than that of central provinces. Fourth, the ability to govern the fiscal budget is not directly related to the state of economic development. Some provinces have a low level of economic development, but the comprehensive score of budget governance capacity ranks high, mainly because of the large central financial support in such areas; especially in the western provinces with low economic development level, it is more obvious. Fifth, the difference in local government fiscal budget governance capacity is decreasing. Through the cluster analysis results, it can be seen that the areas in the fourth category, that is, the lowest level of fiscal budget governance capacity, are decreasing year by year, and most of the areas are in the second and third categories, that is, the intermediate level, and the gap between the financial budget governance capabilities of local governments is gradually narrowing.
(2) Policy recommendations
Focusing on the overall goal of establishing a modern fiscal system, in accordance with the overall requirements of "establishing a comprehensive and standardized, scientific and constrained budget system, and comprehensively implementing budget performance management", comprehensively promote budget performance management, improve the budget supervision and coordination mechanism, increase the scope of budget disclosure, improve the level of budget legalization, improve the local government budget governance system, and improve the ability of local government financial budget governance.
1. Establish a sense of fiscal budget governance and strengthen the binding force of budget revenue and expenditure
Budget governance is a new model different from traditional budget management, budget governance means re-examining the relationship between the government and society, the government and the market, the government and enterprises, and establishing a diversified budget governance body. Under this model, citizens can directly participate in budget management and supervision to maximize the scientific budget arrangement and maximize budget benefits. In the current critical period of economic and social transformation and change, it is necessary to firmly establish the concept of local financial governance, improve the financial governance system in which local governments, enterprises and institutions, community organizations, the public and other pluralistic entities participate together, improve the transparency of the allocation and use of fiscal funds, and implement the right of multiple entities to know, supervise and evaluate financial distribution, in order to effectively improve the financial governance capacity of local governments and improve the efficiency of local government budgets. At the same time, through improving the budget supervision and coordination mechanism, it is necessary to strengthen the effective constraint on the budget revenue and expenditure of local governments, further deepen the supporting reform of the fiscal and taxation system, clarify the boundaries between the central and local fiscal powers and powers, fully reflect the scientific matching of the central and local fiscal powers, avoid the structural imbalance of the financial power and power of the central and local governments, and create good institutional conditions for the improvement of the budget governance capacity of local governments.
2. Raise the level of legalization of local budget governance, and improve the local budget governance supervision system
The modern market economy is essentially an economy based on the rule of law, and the financial budget must be carried out in accordance with the provisions and requirements of the State Budget Law. Because the Budget Law is a procedure and rule for the design of budget work, it regulates the government's budget behavior, clarifies the roles and roles of budget participants at all levels in the process of allocating public resources, and makes it form a clear pattern of power and responsibility allocation. Therefore, it is particularly important to promote the rule of law in local government financial governance. Budget preparation, financial approval and financial supervision will be included in the scope of legislation, and functional boundaries of government, market and social organizations will be established. Minimize arbitrariness in local budgets. Clarify the budget management responsibilities of financial departments, improve the government budget system, increase the overall planning of government fund budgets, state-owned capital operation budgets and general public budgets, and improve the social insurance fund budget preparation system. Strengthen the connection between the financial supervision of the people's congress and the supervision methods of auditing supervision, financial self-supervision, the public and intermediary organizations, and establish a scientific and perfect budget governance supervision system for financial departments. Establish and improve mechanisms for mutual restraint and coordination in the preparation, implementation, and supervision of local financial budgets.
3. Comprehensively promote budget performance evaluation and improve the level of budget performance management
To comprehensively carry out budget performance evaluation, it is necessary to strengthen the top-level design of the budget and build a budget-active government. This is an inevitable requirement for improving the level of budget performance management and realizing the modernization of the local fiscal governance system. For a long time, because the relationship between the government and the market has not been scientifically and effectively handled, the non-clear state of the boundary of government functions has led to the dismemberment of the financial function in fact, which restricts the construction of the local government's financial governance system and the improvement of fiscal governance capabilities. Under the premise of ensuring the centralization and unification of financial power, we should give play to the enthusiasm of both the central and local governments. From the perspective of centralized management of financial functions, the financial department should integrate the management functions of related affairs, so as to greatly improve the efficiency of the use of fiscal funds and reduce the cost of coordination between departments, and ultimately improve the level of local government financial governance capabilities.
Implement a cross-annual budget balancing mechanism and medium-term budget dynamic planning management, and strengthen the connection with economic and social development planning. Establish a government asset reporting system, deepen the reform of the government debt management system, and establish a standardized government debt management and risk early warning mechanism. Establish a comprehensive government financial reporting system and a fiscal pool target balance management system. Construct a scientific budget performance evaluation index system, give full play to the important role of third parties in evaluation, implement step by step, and steadily advance, so as to achieve a budget performance management model of the whole process such as budget target preparation, budget execution monitoring, budget completion evaluation, and application of evaluation results. Adapt to the requirements of establishing a modern fiscal system, reflect on the fundamental problems of budget reform in the process of modernization of national governance capabilities, give full play to the multiple roles of budget reform, strengthen the informatization construction of local financial departments, and give full play to the basic role of the budget in local financial governance and even the modernization of the national governance system.
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