Abstract: Fiscal governance and audit governance are the foundation and important components of the government governance system. This paper takes advantage of the“Province-Managing-County”(PMC) finance reform to explore the impact of these two forms of government governance on local government fiscal violations. The findings show that the fiscal PMC reform can significantly increase the amount of fiscal violations by county governments, but this effect will decrease gradually and fade away in 5 years. The mechanical analysis indicates that the increase of the amount of fiscal violations by county-level governments is mainly due to the loosening of audit supervision restrictions caused by reform in a short term, while the audit supervision environment being strict and the improvement of audit technology efficiency can effectively restrict the fiscal violation behaviors. There is no evidence to support that fiscal incentives are the channels through which the reform affect the fiscal violations of county-level governments. Further study finds out that the fiscal PMC reform can also increase the amount of fiscal violations by prefecture city governments; however, its influencing mechanism is mainly due to the fiscal incentives generated by not participating in the county-level tax sharing or losing of fiscal interception opportunities. Therefore, it is suggested to balance the fiscal decentralization relationship between governments, improve audit quality and audit independence, and pay attention to the policy coordination of fiscal system reform and government audit system reform.

Key words: province managing county finance, fiscal violation, fiscal governance, audit governance