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Second, the intergovernmental fiscal system remains deeply flawed. The Bank’s Provincial Public Expenditure Review (PER) provides a good analysis of the issues (World Bank 2002a). There is a mismatch between tax and expenditure assignments at different levels of government, and the overall incidence of the fiscal system is regressive. 1 times in 1990). 5 This imbalance accentuates regional inequality. 6 The level and arbitrary nature of these fees have been a major source of discontent, leading to “tax revolts” in some poorer rural areas.

The latter approach has not worked well in very poor areas because it undermines political support and leads to favoritism in allocation, with attendant leakage and corruption. Not all components worked. Investments in TVEs, as in other projects, were largely unsuccessful, but this component was reduced sharply during implementation. The health component, involving an attempt to provide collective insurance, was not 20 reflects the growing importance of non-farm income, which grew from 26 percent of farmers’ household income in 1990 to 47 percent in 1999.

In particular, emphasis on capital-intensive resource extraction projects will do little for the poor in western provinces unless the traditionally low transfer prices for raw materials are raised and appropriate fiscal sharing arrangements are made. PROGRESS ON DEVELOPMENT OBJECTIVES Until the late 1990s, China’s poverty strategy was to push for the fastest possible growth, combined with targeted regional development interventions. Could China have done more to reduce poverty faster? Or would such attempts have simply reduced growth without affecting poverty?

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