Rural tax reform and the extractive capacity of local state in China

Article history: Received 16 January 2011 Received in revised form 10 October 2011 Accepted 17 October 2011 Available online 25 October 2011 China's fiscal arrangement in the 1980s has preserved local governments' incentive but the 1994 fiscal reform recentralized revenues. Since then, farmers' tax burdens have risen steeply and become a major challenge to the state legitimacy. How to account for the huge regional variation? Why were some localities able to tax more heavily than others? Based on a national survey of village governance in China, we examine farmers' burdens empirically and identify political and social factors that explain the local governments' ability to tax farmers. This paper suggests that developments since the 1990s have shown that it overstates local discretionary power and does not pay enough attention to societal forces in understanding local public finance. © 2011 Published by Elsevier Inc. JEL classification: H22 H71 P52