Public Sector Employment Expansion, Expenditure Pressure and Fiscal Revenue Quality: A Non-Tax Perspective

Optimizing the structure of fiscal revenues and improving the quality of fiscal revenues are important elements of a sound modern fiscal and tax system. This paper studies the impact and mechanism of public sector employment expansion on non-tax revenue growth. The results show that public sector employment expansion is an important driver of non-tax revenue growth and poor fiscal revenue quality. The mechanism lies in the fact that public sector employment expansion exacerbates expenditure pressure, which is manifested in the growth of fiscal expenditures, especially self-interested fiscal expenditures, such as administration, and thus pushes back the growth of non-tax revenues. Further, from the viewpoint of subcategories of non-tax revenues, public sector employment expansion will affect the market system transaction cost revenues such as confiscated revenues, administrative fees and special revenues, while revenues from state-owned capital operation and state-owned resource concessions, which should bear the effect of revenue growth in non-taxes, are unaffected. This paper provides policy recommendations to improve the management of non-tax revenues in order to enhance the quality of fiscal revenues from the aspects of strengthening the preparation and supervision, optimizing the structure of levy and management, and coordinating the main bodies of levy and collection.