Tax-Sharing Reform of China in 1994

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The Chinese government initiated a fiscal and taxation system reform in 1992, prepared and promulgated in 1993, and finally implemented in 1994. The reform was a large-scale adjustment of the tax distribution system and tax structure between the central and local governments, which was regarded as a milestone in the transition of China's fiscal system from planned economy to market economy.^[1] The main purpose of the tax-sharing reform is to alleviate the budget deficit since the end of the 1980s. As the reform achieved indeed remarkable results, it yet evoked problems like heavier financial burden of local governments. In order to make ends meet, governments started to let lands (also known as land finance) which eventually pushed up the land and housing price. Therefore, the tax-sharing reform is considered to be the reason of China's severe land finance.^[2]