Abstract: Every system reform must involve the interest adjustment. The principle that the stock must be kept steady and the increment must be adjusted was followed in the reform of tax-sharing system in 1994. The double-track fiscal system had been implemented from then on. This reform method has kept the vested interests divide steady, and it decreased resistance of the fiscal system reform. This method is one classical mode of Pareto Improvement. However, the background of present fiscal reform is different from the 1993′s reform: the vested interests divide is hard, and the space of Pareto Improvement does not exist nowadays. This paper suggests that the Kaldor Improvement is more suitable to the present fiscal reform. This system reform will be feasible if this reform can improve the level of social welfare according to the Kaldor principle, and then the fiscal system can be used to distribute the benefit of reform to achieve the goal of social equity.

Key words: Pareto, Kaldor, fiscal system, tax-sharing system reform