Incentives And Constraints: Economic Behavior Of Local Government

During the period of transition economics in China, government behaviors especially the local government behavior play an important roles on pushing economic growth owing to the lack of sound legal system and coercive restriction, which in one way or another influence consumer's welfare and the disposition of resources through the channel of adjusting income and price. To analyze and understand the rapid economic growth of China, the role and functions of local government must be highly focused.Since 1980`s, the reform strategy that distributes power among local administrative governments, undoubtedly bring into full play the initiative of local governments in economic growth, the same while boosts the national economic growth for many years. However, the cause of the local government behavior is not motivated by the local taxpayers but for the satisfaction of superior officials and political reputation, even though the local government `s motivation for good performance can turn to be a strong drive to optimize local investment environment and improve quality of common goods, consequently contribute to boost the regional economic growth. Moreover, acting as quasi market subjects that are motivated by maximization of local interests and political competition of its officials, local government has enough incentives to behave based on the concept of opportunism and benthamism. For attracting economic resources and pursuing regional economic high growth, sometimes there are many negative competitions for economic resources and interests between central and local governments as well as between local governments themselves. The irrational behavior of local government caused by the lack of coercive budgetary and competitive restrictions is weakening the authority of central government and leading to the waste of resource and...