Social Sciences in China (Chinese Edition)

No. 9, 2025

The “Dual-Track Fiscal System” in the Qing Dynasty and State Fiscal Capacity: An Analysis from the Perspective of Credible Commitment

(Abstract)

Hao Yu and Liu Zhengcheng

Inter-government fiscal arrangements in the Qing dynasty were characterized by a “dual-track fiscal system” in which a formal system with a central budget of legal revenues and expenses coexisted with an informal, decentralized local fiscal system financed by miscellaneous extra-legal taxes. From the standpoint of dynamic game theory, this arrangement reflected the central government’s inability to credibly commit not to infringe upon the formal fiscal powers of subordinate governments, producing an “institutional equilibrium” in the game between central and local authorities. Over the long term, reforms that sought to establish formal, on-budget fiscal decentralization invariably failed, reverting to the dual-track equilibrium. This structure impeded the expansion of the Qing state’s fiscal capacity and hindered the modernization of its fiscal and financial institutions. A systematic analysis of intergovernmental fiscal relations and their underlying game mechanisms based on economic theories provides a new analytical framework for understanding the evolution of fiscal institutions in Chinese history.