What Is a Fiscal Imbalance?

Horizontal fiscal imbalance refers to the differences between local governments at the same level in terms of income capacity, expenditure levels, and ultimately public service capacity. Because there is a horizontal fiscal imbalance between regions, it is objectively required that the central government should take into account horizontal imbalances when making up for vertical fiscal imbalances. Therefore, when making intergovernmental transfer payments, it is necessary to pay attention to the differences in revenue capacity and expenditure costs in each region, and ultimately to achieve equalization of public service capabilities in each region.

Horizontal fiscal imbalance

Right!

Horizontal fiscal imbalance refers to the differences in income capacity, expenditure levels, and ultimately public service capacity between local governments at the same level. Because there is a horizontal fiscal imbalance between regions, it is objectively required that the central government should take into account horizontal imbalances when making up for vertical fiscal imbalances. Therefore, when making intergovernmental transfer payments, it is necessary to pay attention to the differences in revenue capacity and expenditure costs in each region, and ultimately to achieve equalization of public service capabilities in each region.

Chinese name

Horizontal fiscal imbalance

Meaning

Income ability between local governments at the same level

Slow down

Economic experience in various regions within a country

aims

Eventually achieve public service in all regions

The economic conditions of various regions within a country are often inconsistent, especially as the economic basis and living standards of people in China's coastal and inland regions are very different. The economy is the foundation of finances, which means that the size of fiscal budgets in different regions may vary widely. Due to the uneven distribution of financial resources, some regions may have more tax bases. In the case of a relatively unified tax system, the revenue capabilities of local governments are not consistent, that is, a horizontal fiscal budget imbalance. If the horizontal budget imbalance affects the balanced development between regions, it will form a "bottleneck" in social production and restrict the overall development of the entire national economy;

It will also promote the flow of population from poor areas to rich areas, further causing irrational population distribution. Nationally, the task of the central government requires that the gap between the rich and the poor be gradually reduced, and some funds be collected from rich areas to support the backward areas. It can be seen that the horizontal fiscal budget imbalance is the theoretical basis for the establishment and development of transfer payments, and is also the main goal pursued by transfer payments. ^[1]