By Chen Changsheng, Jiang Yu & Li Chengjian, Research Team on “Modernization-Oriented Fiscal and Taxation Reform”, Research Department of Macro Economy, DRC

Research Report, No.64, 2019 (Total 5564) 2019-5-5

Abstract: Finance is both the foundation and the major pillar of national governance. In light of modern history and theories related to state functions and financial system, this paper sums up six basic principles of modern finance, including the principles of the rule of law, equity, national capacity, sustainability, efficiency and sound governance. According to the basic principles of modern finance, this paper proposes an overall framework to shore up fiscal and taxation reform for modernization-oriented national governance. The relevant government departments need to make endeavour in the following aspects. 1. Establish a modern financial revenue system equipped with full-fledged laws, simple structure, stable tax sources and incentive compatibility. 2. Establish a modern law-based fiscal expenditure system, keeping expenditures within the limits of income and ensuring the basic needs while promoting development. 3. Establish a modern central-local financial relationship in line with the statutory principles relating to relevant functions of power and responsibilities and bolstered by coordinated financial resources, balanced regional development and effective competition. 4. Establish a modern budget management system with a medium-term expenditure framework that is standardized and transparent with wide participation and strong constrains. 5. Establish a modern debt management system with authorized power by law, clear responsibility, effective incentives and controllable risks.

Key words: fiscal and taxation reform, national governance, modern finance, framework research