The Study On The Impact Of China’s Fiscal Decentrialization System On Economic Development

Since Adam Smith, the research on economic growth has been one of the important topics in academic field. While the classical and neoclassical school argue that the traditional endogenous factors are not desirable to explain economic growth, institutional economics points out that the system is not an exogenous variable, but a key factor in economic growth. This dissertation focuses on the fiscal decentralization system to consider the relationship between the fiscal decentralization and economic growth. Different from the fact that the market economy fully developed, and theory and practice of the fiscal decentralization in the western countries have come to be perfected, currently, China is experiencing the transition from the planned economy to the market economy, so institution demand and supply will make the institutional change display different characteristics. Under this situation, the study of the relationship between Chinese fiscal decentralization system changes and economic growth has important theoretical and practical significance, favorable to further adjust and regulate the financial management system in the "Post-reform Era" to make the economy develop sustainably and healthily.This paper focuses on the fiscal decentralization system, combs the existing theoretical researches on the status of fiscal decentralization, institutional change and economic growth through the literature review, analyses the historical changes in the fiscal decentralization system since China’s Reform and Opening up, and evaluates the advantages and disadvantages of the fiscal decentralization system. The theoretical analysis is based on the discussion above. This thesis maintains that the effect of fiscal decentralization on economic growth is divergent and multidimensional, including the comprehensive results of the direct and indirect effect. The empirical part verifies the direct, indirect and comprehensive effect of the fiscal decentralization on economic growth through quantitative regression method. This thesis makes innovative explorations as follows:1. Using endogenous institution theory to analyze the comprehensive effects of fiscal decentralization on economic growth. The present theoretical researches on the relationship between fiscal decentralization and economic growth are mostly based on the neoclassical Solow’s (1956) or Barro’s(1990) theoretical model, unable to make a sound explanation on the relationship between fiscal decentralization and economic growth are desirable. The viewpoint proposed by Institutional economics that the system determines the economic growth is precisely fit the needs of research on the relationship between the fiscal decentralization and economic growth. The author adopted the USA scholar Daron Acemoglu’s argument that endogenous institution determines economic growth theory view decision thought, constructed the viewpoint that endogenous fiscal decentralization system plays a decisive role in economic growth, and maintained that, through a clear definition of the central and local governments in the range of financial and administrative power, the system of fiscal decentralization in China plays a decisive role in economic growth, by adjusting the fiscal funds in the expenditure of public sectors to achieve the rational allocation of resources. At the same time, the fiscal decentralization system, due to the endogenous characteristics, and other variables affecting economic growth, especially the endogenous variables, interact, and thus indirectly affect economic growth.2. Strengthening the indirect effects of the system of fiscal decentralization on the economic growth theory. Although the existing academic research achievements in fiscal decentralization have the massive elaboration on the effect of economic growth, and also divided into direct and indirect effects, the researches on the indirect effects was not comprehensive, ignoring the indirect effects of fiscal decentralization on the potential function of resource allocation. This paper argues that fiscal decentralization has divergent effects on economic growth. In addition to the direct effect on the resource allocation, indirect effects include indirect effects of fiscal decentralization through resource allocation and institutional environment effect. Based on the selective reference and the previous academic achievements, this thesis focuses on the indirect effects of the fiscal decentralization, and attempts to introduce related variables affecting economic growth, including industrial structure, technological innovation, human capital and other variables as intermediate variable transmission, between fiscal decentralization and economic growth, studying systematically the relations between them for the hope of offering more comprehensive and reasonable efficiency theory of fiscal decentralization.3. Proposing the analysis framework of Fiscal Decentralization-the intermediate variables-economic growth. The existing researches on the indirect effect of fiscal decentralization on economic growth mainly centered on the government behavior, the expenditure, and macroeconomic stability and marketed level as the intermediate variables, but most of them only studied the local relations among the three factors, lacking the comprehensive research by putting three factors into a theoretical framework. This paper, based on the system of fiscal decentralization, in accordance with the theory that the economic system determines the economic performance proposed by Daron Acemoglu, sets up the theoretical framework of fiscal decentralization system determining economic growth, adopting some significant variables in economic performance and economic growth, as control variables, especially the industrial structure and other indicators, unifying the variables in three aspects into the frame of logic analysis to make an empirical test of the indirect effects of fiscal decentralization system on economic growth by affecting different control variables so as to clarify the working principle and mechanism of the comprehensive effect of fiscal decentralization on economic growth.4. Making an empirical test on three models of the impact of the fiscal decentralization on economic growth. This paper puts forward the comprehensive and divergent effect of the system of fiscal decentralization on economic growth, extending the theoretical model into three core models of the direct effect, indirect effect and the comprehensive effect of China’s fiscal decentralization system on economic growth, combining with the panel data of30provinces and autonomous regions except Chongqing in China, and making the empirical study by using panel regression method. The thesis found the China’s fiscal decentralization system has comprehensive effect on economic growth, the organic combination of direct and indirect effects. According to the endogenous institution theory, fiscal decentralization system contributed endogenously to the economic growth, determining the current and future economic performance and resource allocation. The direct effect is reflected as the fiscal decentralization system as endogenous variables directly affects the economic growth by exerting influence on the allocation of resources ia public sectors, the indirect effect is embodied as the fiscal decentralization system and other endogenous variables interact, playing an indirect role in the allocation of resources and the institutional environment to influence other endogenous variables, and further affecting economic growth through the conduction mechanism of these variables.