This brief shows how lessons from European Union’s (EU) fiscal rules could help the People’s Republic of China (PRC) bolster local government debt sustainability through flexible, transparent frameworks that support stable economic growth. It looks at how the PRC and EU both use multi-year fiscal planning, details the EU’s Stability and Growth Pact, and notes its “escape clause” for crises. It explains how PRC revenue collection is centralized although more than two-thirds of public spending is at local level, and shows how adopting adaptable and politically feasible fiscal rules can tackle local government indebtedness and improve public resource allocation.
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