In order to improve the effectiveness of redistributive policies, in 2002 the Chinese government increased fiscal transfers and imposed more stringent regulations on the use of earmarked funds. This article evaluates the impact this had on K county in a north-western province. The case study finds that the misappropriation of earmarked transfers did decrease but this did not necessarily indicate an improvement in the local government's compliance in the usage of transfers. Instead, the county governments found ways to sabotage central policies by exporting fiscal burdens to the subordinate bureaus that received the earmarked subsidies. In some bureaus this was done by reducing the amount of funds allocated for operating expenses. In others it involved increasing staff numbers. These findings provide a basis for evaluating the effectiveness of using earmarked funds and internal supervisory mechanisms to achieve policy objectives in an authoritarian regime.
Mingxing Liu is an associate professor at the China Institute for Educational Finance Research, Peking University. He is also affiliated with the China Economics and Management Academy, Central University of Finance and Economics, Beijing.
Juan Wang is a PhD candidate in political science at the Johns Hopkins University.
Ran Tao is a professor in the school of economics, Renmin University of China. He is also a research fellow at Peking University–Lincoln Institute Center for Urban Development and Land Policy.
Rachel Murphy is university lecturer in the sociology of China at the University of Oxford.
* We would like to thank the China National Science Foundation (70633002), the Ford Foundation and the PKU-Lincoln Institute Center for Urban Development and Land Policy for generous financial support. We also gratefully acknowledge the invaluable feedback and suggestions of Frank Pieke and Julia Strauss.