Research On Economic Growth Effects Of Fiscal Decentralization For China And India

Recently, policy makers and scholars begin to focus on economic growth effects of fiscal decentralization with widely fiscal decentralization practice and corresponding rapid economic growth in developing countries. Theoretical and empirical literatures have gained some conclusions, but these are full of uncertainty and contradiction. This dissertation analyses the reasons of the problems, and based on which analyses the relationship between fiscal decentralization and economic growth for China and India by empirical approach. The conclusions provide experience to developing countries.First, theoretical and empirical literatures don't clearly know the mechanism between fiscal decentralization and economic growth. The dissertation summarizes it to the allocation effect of fiscal expenditure decentralization and the institute environment effect of fiscal revenue decentralization. The allocation effect is direct approach for fiscal decentralization affecting economic growth. Since the central government and the local government have different fiscal expenditure efficiency when providing different public services, allocating the public resources between the central government and the local government by fiscal expenditure decentralization will affect economic growth. The institute environment effect is indirect approach for fiscal decentralization affecting economic growth. Fiscal revenue decentralization will induce governments' tax competition and change the governments' behavior, which consequently affect private department's output and economic growth. Based on above research, the dissertation establishes two dimensional empirical models to research the economic growth effects of fiscal decentralization.Second, by analyzing the reasons for the differential conclusions of empirical studies, the dissertation finds that the main reason is sample differentia. By introducing the optimal degree of fiscal decentralization, it argues that the relationship between fiscal decentralization and economic growth depends on the comparison between the actual degree and the optimal degree of fiscal decentralization. When the former is less than the latter, fiscal decentralization will promote economic growth, and on the contrarily, it will hinder economic growth. Further research finds the optimal degree is dynamic. When the optimal degree of fiscal decentralization changes, the sample will include two kinds' data and make the result deviate. Therefore the dissertation argues some restrict conditions for sample choice and the method to check up whether the optimal degree of fiscal decentralization seriously changes. It also makes point that the results only explain the temporality effect of fiscal decentralization to economic growth in sample period.Third, the dissertation studies fiscal decentralization system and the pattern of economic development of China and India. These differences will affect fiscal decentralization index setting and the choice of control variable. It must review the fiscal decentralization below the provincial government for China, but only studies the fiscal decentralization between federal government and state government for India. China's economic development mainly depends on manufacturing and foreign trade, while India mainly depends on service and high-tech industry due to its behindhand infrastructure. Therefore the dissertation chooses international trade, the development of secondary vocational education and higher education to reflect the difference patterns of economic development between China and India.Finally, the dissertation studies the relationship between fiscal decentralization and economic growth for China and India. According to two dimensional empirical models and panel data of China (1995～2006) and India's 20 states (1996～2004), the empirical study find that, fiscal expenditure decentralization has promoted the economic growth while fiscal revenue decentralization has hindered the economic growth for China. Both fiscal expenditure decentralization and fiscal revenue decentralization have promoted the economic growth for India. The common grounds in fiscal expenditure decentralization show the promoting effect of fiscal expenditure decentralization is prevalent. The difference in fiscal revenue decentralization show the relationship between fiscal revenue decentralization and economic growth suffer democracy conditions and market economy development. Then the dissertation proposes a guideline of fiscal decentralization reformation for China and India, and some critical suggestions for other developing countries.