The Effects Of Fiscal Decentralization On The Quantity And Inter-Regional Inequality Of Public Education In China

Fiscal decentralization (FD) is currently a world-wide trend. With economicdevelopment, a large number of countries tend to transfer more fiscal authorities to localgovernments. Previous theoretical research shows that, in a sound political and fiscalsystem, FD can effectively motivate local governments to act for local citizens.However, in reality, because of various problems in mechanism design, FD doesnot have the positive effects which are mentioned in theories. In China's case, whiletax-sharing reform in1994increased fiscal revenue of central government, it alsoincreased the fiscal expenditure burden of local governments, which could causedistortion to actions of local government. Specifically, FD on expenditure could makelocal governments to decrease public services provisions, like public education.We first discuss main reasons of this situation: under tournament competitionamong local government officials, FD on expenditure and decentralization of educationexpenditure, local governments tend to invest more in infrastructure but less in publicservices. Then we build theoretical models, and do empirical tests based on1996-2007prefectural and1985-2007provincial data in China. The results show that fiscaldecentralization does decrease education provision. We find that negative effects of FDon public education provision are worse in provincial level than provincial level; and wealso find the effects worse in primary education in comparison of different educationlevels, and worst in central China in comparison of different regions.Based on inter-prefectural inequality indicators of education provision of allprovinces in China, we do empirical research on how FD affects inter-regionalinequality of public education provisions, and we find that FD could decrease inequalityof relative education provision, but increase inequality of absolute education provision.And in the scope of whole country, we find FD on expenditure decreases inter-regionalinequality of education provision, which FD on revenue could increase.From theoretical models, empirical results, and case study of "Liang Mian Yi Bu"in four provinces, we provide policy suggestions on improving education provisions.