Taxation Without Representation in Contemporary Rural China, by Thomas P. Bernstein and Xiaobo Lu. Cambridge: Cambridge University Press, 2003. xviii + 282 pp. US$70.00 (hardcover).
This book is an excellent resource on the distribution of political power and financial responsibilities in rural China and the authority of local officials vis-à-vis the central government and peasants. It also examines the effectiveness of village democracy in reducing unjustified taxation burdens, and explores the question of whether peasant uprisings and incipient rural democratization are sowing the seeds for widespread political liberalization. Overall, the book illuminates the relationship between fiscal decentralization, central-local government relations, peasant tax burdens, rural regional disparities and village democracy-interrelated subjects that too often have been studied in isolation.
Bernstein and Lu suggest that the taxation problems have historical roots. In Imperial China, like today, the regime was unable to design, implement or enforce an equitable taxation system and had to rely heavily on informal, ad hoc ways of financing that gave rise to widespread corruption. Then as now, unjustified taxes became the single most important instigation or catalyst to popular rebellion, known as guanbi minfan (officials driving the people to rebel). During the Maoist years, though taxation was less of a cause of rural discontent, planned industrialization gave rise to an urban bias in policies that extracted resources from the agricultural sector. In particular, the central procurement of grain at state-set prices that were often below market prices and the sale of industrial inputs to farmers at high state-determined prices created a "scissors effect" that discriminated against the rural sector. This "hidden burden" continues until today.
The fiscal decentralization initiated in the early 1980s made local governments responsible for balancing local budgets based on revenues and expenditures, which stimulated local development by allowing local governments to keep their surplus revenue. In doing so, local governments concentrated resources in developing township and village enterprises (TVEs) at the expense of agricultural development, and frequently resorted to off-budget funding to finance the provision of essential public services, such as education and health care. Studies by economists and a recent World Bank report by Christine Wong provide evidence that regional disparities and uneven development have been exacerbated, since poor provinces that run chronic budget deficits fail to provide basic infrastructure, while rich provinces are able to play a developmental role using the revenues from local enterprises. …