Chinese Journal of Sociology

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The Problems of Fiscal Earmarked Funds: On “Governing the State through Programs”

Author: Zhou Feizhou, Department of Sociology，Peking University   

  1. Author: Zhou Feizhou, Department of Sociology，Peking University
  • Online:2012-01-20 Published:2012-01-20
  • Contact: Zhou Feizhou, Department of Sociology，Peking University E-mail:pkufeizhou@gmail.com
  • About author:Zhou Feizhou, Department of Sociology，Peking University

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Abstract:

Since the TaxSharing Reform in 1994, more and more fiscal funds have been transferred down to local governments in the form of “earmarked” or “program” funds. These funds are downward flowing in a very complicated multilevel governmental system. The first part of this paper provides an overview of the structural channels of the earmarked transfers with tables and graphics. In the second part, the paper reports a case in the education sector to illustrate the management and use of such funds. On the grassroot governmental levels, especially in counties and townships, the countylevel education bureaus transfer many earmarked educational funds directly to rural schools, rather than to township governments. The townships, which used to be the direct fundmanager of the rural schools, are no longer needed in the new management system. The author labels this new fund flowing channel as the “7”shaped pattern and the old one as the “L” pattern. The case analysis of the efficiency in utilizing the educational funds in the two patterns, especially the fund for routine operational costs of the schools, has found that the new pattern has led to more and more funds being “specialized” as earmarked funds including those for routine operational costs. Furthermore, in the new system, most funds are required to be managed as earmarked funds, therefore, it is mandatory for schools to submit fundapplication proposals and fund expenditure reports to their county education bureau, the process of which has lowered efficiency. The new “7”shaped fund transfer channel is not able to handle local emergencies efficiently because if a school faces an emergency, such as a wall clashed in a rainstorm, has to write a proposal to apply for a fund from the county bureau, but the county leaders still mandate the county bureau to solve the problem together with the township government while the latter is now kept out of the loop of the new fundtransfer system. The last part of the paper discusses the unexpected consequences of the new system of the earmarked funds and concludes that specializing funds as earmarked ones could have been leading to lowered efficiency rather than the opposite.