Study On The Fiscal Decentralization Inflation And Inefficiency

This article mainly studies two related topics which produced by the Fiscal decentralization. One is whether there exists correlation between China's fiscal decentralization and economic fluctuation? If the answer is yes, then what is the inner mechanism of the influence? The other one is while the fiscal decentralization is mobilizing the positivity of the local government economic development, whether the distortion of the incentive appears at the same time? What kind of efficiency loss will this distortion mean to the different regions? If fiscal decentralization causes the macroeconomic fluctuation, what will be the cost for this fluctuation? Especially what kind of efficiency loss of the resources allocation will be produced by the economic fluctuation?The main research conclusion of the article includes 4 points as the following:Firstly, the macro mechanism. One of the most important features of the Chinese economic fluctuation is the cycle which can be described as"if the economy is slackened, it will be in disorder, then the government should pay more attention to the supervision of the economy, then it will no longer be energetic"(the"random"cycle). What decides the existence of the China economic fluctuation is the central and local financial relationship and the local government officials'assessment system that are also the important institutional factors. Analyzed from the macro view, the decentralization stimulated the impulse of the local government officials investment action, meanwhile, the government expenditure had asymmetrical influence on the impact of supply and demand which made the economic fluctuation exist.To be more specifically, if the government expenditure has incomplete extrusive effect on the private investment, it will improve the social demand level directly. However, due to the discrepancy between the government expenditure and the private capital, the latter use efficiency is much higher than the former, which means that when the government expenditure is increasing the social demand, it also brings about the decline of the social productivity. In the AS-AD analytic frame, the corollary means that the local investment's expansion caused by the decentralization will not only lead to aggregate demand curve AD to move right but also the aggregate supply curve AS to move left. Then the price level will rise and the output will increase appropriately (may declines in extreme conditions). This simple logical reasoning does explain why the price fluctuation shows more obvious Procyclical characteristics in China and why the price fluctuation far outweigh the output's. Considering the overheated local economy caused the macro-control by the central government, the macro economy will represent the periodic cycle which mentioned above. In other words, the fiscal decentralization makes the expansion of the local investment scale which causes the demand level rises sharply and supply capacity decreases lightly. Then the inflation and the economic growth will make the economy be overheated which also caused the local government to do the macro control. Result would be the economic depression such as deflation and economic growth. By using the Blanchard-Quah(1989) structure VAR decomposition method, this article analyze the impact composition of the Chinese economic fluctuation supply and demand which inspects the basic research hypotheses discussed above.Secondly, the microeconomic foundation, why the regional fiscal decentralization will lead to the expansion of the scale of the investment? In order to explore the macro analysis foundation, the article further analyzes the influence on the local government officials'incentive behavior caused by the fiscal decentralization. What made the"Chinese typical fiscal decentralization"become the economic cyclic fluctuation micro foundation is the stimulation on the financial revenues and political promotion of the local government officials. Both of the incentives'goal is to develop the local economy and increase the tax basis and the possibility of the promotion from the economic growth. They also have the same method that is to use the government expenditure to affect the regional capital formation. Relative to the overall planning set by the central government, the directly result is the regional investment expansion induced by the financial revenues and political promotion stimulation. If trying to further consider the central government fine-tune policy and local government anticipation, the"random"cycle will express much greater fluctuation amplitude which is brought out by the fiscal decentralization. Because the central government regulation will stimulate the local government to set up or carry out all the decided investment projects before the arrival of the stricter regulations, and those actions will cause the macro economy fluctuate more intensely. Then we can draw a brief induction that the fiscal will bring out the incentive distortion which will make the expansion of the regional investment exist. Then the central fine-tune policy will stimulate the regional economy to be overheated and the central government will probably put the stricter administrative regulation into practice. As a result, the fiscal decentralization undeniably appears. By using the dynamic panel data, this article did the inspection which shows that one of the most important factors related to the regional macroeconomic fluctuation is the local government budget expansion especially the non-budgetary funds.Thirdly, the direct efficiency loss, the main one is the loss of the competitive efficiency which can be seen from the regional income disparity expansion. The intrinsic logic can be comprehended as follows: in the stimulation of the financial revenues and political promotion, different areas will have varied effects. As for the developing regions, people not only expect to narrow the gap between the developed areas but also avoid being caught up by the backward areas. All the foals make them have the most efficient stimulation effects which lead to the least competitive efficiency. On the contrary, the backward areas are only under the pressure of trying to catch up others and the developed areas only need to avoid being caught up. Consequently, both areas will have more competitive efficiency loss. The phenomenon means that the competitive strength can be the reversed shape U based on the economic development and the competitive efficiency can be the shape U according to the economic development degree. This article did the inspection's conclusion can support the"shape U"structure analysis. From the dynamic view, the competitive efficiency loss will further become the"club convergence"in the expansion of the regional income disparity and the regional economic growth. The inherent logic is both the gap between the developing and backward areas will be enlarged constantly. That is to say, the regional disparity will convert to serious polarization between the coastal and inland areas.The last one is the indirect efficiency loss which is a part of the economic fluctuation, especially the allocation efficiency loss brought out by the price fluctuation. The so-called allocation efficiency loss, caused by the unreasonable combination of the resource allocation and factors, means the deviation from the production to its frontier. This article did the proof theoretical and evidentiary that economic fluctuation brings out the allocation efficiency loss increase. The more important one is along with this situation, the allocation efficiency loss will be digressive gradually that can be called"Threshold effect". The internal logic is the economic fluctuation and the relative prices changes will break the balance of the micro enterprises'allocations. People need to redefine the production plan or readjust elements proportions which involves the cost adjustment should not be ignored. The planners may be unable to make timely and sensitive reaction to any glimmer of change. Therefore, the"approximate rationality"decision makers may to use the current production plan and input density of the elements. With the increase of the fluctuation amplitude, adjustment can earn more than the cost, and then the enterprises would readjust the production plan. When the economic fluctuation amplitude increased gradually, some enterprises begin to adjust their own strategies. At last, all of them will pay for one-off adjustment as their limitation of the allocation efficiency loss. The economic fluctuation has influence on the allocation efficiency loss can be increased or be digressive. This article did the inspection to prove the nonlinear relationship between the price fluctuation and the allocation efficiency loss.