By Jun Ma (auth.)
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The assessment of basic fiscal needs is very complicated. The first step is to divide the aggregate fiscal needs into several categories, such as education, welfare, 38 The Chinese Economy in the 1990s police, road construction, etc. The second step is to estimate the fiscal need in each category using the following formula: Fiscal need = measurement unit × unit cost × modification coefficient where the measurement unit reflects the size of the beneficiaries, unit cost reflects the standard cost per measurement unit, and modification coefficient reflects the extraordinary needs or cost differentials across regions.
A simplified formula of the Japanese Local Allocation Tax is as follows: Transfer = Basic Fiscal Needs − Basic Fiscal Capacity that is, the transfer to a locality depends on its basic fiscal needs and basic fiscal capacity. Basic fiscal capacity is measured by multiplying the locality’s tax bases by the national standard tax rates. The assessment of basic fiscal needs is very complicated. The first step is to divide the aggregate fiscal needs into several categories, such as education, welfare, 38 The Chinese Economy in the 1990s police, road construction, etc.
The funded pension scheme invests in government bonds and bank deposits9 and the benefit levels will be linked to personal contributions. Reform of the pension system in the rural areas has progressed relatively slowly, starting with some experiments in 1991. The recently promulgated ‘Plan for a Rural Pension System’ suggests that the rural pension system will rely primarily on personal contributions, and will be supplemented by subsidies from local governments and support by government policies.