Empirical Study On China's Fiscal Decentralization In The View Of Economic Growth

The economic growth is one of the most important topics of our times,since the times of Adam.Smtih,economists continue to study this topic,what is the mystery of economic growth is attractive to economists.The Nobel laureate economist Robert Lucas once said "Once you start thinking about economic growth,it is hard to think about anything else." Since China began its economic reform at the end of the 1970s, different from other country in transition which fall into economic stagnation and ongoing political turmoil,China's economic development has achieved remarkable results.Most economists predict that China's successful transition and high economic growth rate over the past 30 years is bound to have far-reaching impact on economic development.To explore the mystery of China's economic growth so as to provide successful lesson of experience for other countries in transition and promote more in-depth reform so as to maintain sustained and steady economic growth has become the subject of academic study.What induces China's high economic growth? Initially scholars have focused on the household contract responsibility system reform in rural areas,on the enterprise system reform which introduce material incentives in enterprises,on the two-track system of price,and the introduction of technology and encourage exports,but neglect the fiscal decentralization reform which is breakthrough of the economic system reform.China's economic reform began in fiscal decentralization reform,regardless of the initial impetus to the reform from the financial pressure or excellent vision of the government leader.Fiscal decentralization was one of the main polices thrusts used in the economic strategy,and its role and impact were very significant.In recent years,with the rise of international study about the relationship between economic growth and fiscal decentralization,scholar gradually started to pay more attention to the role of China's fiscal decentralization reform on China's Sustained high-speed growth.The relative literature about this topic also started up,but these literature did not systematically explore the impact mechanism of fiscal decentralization on economic.The existing literature about the mechanism got beautiful result by introducing different level government expenditure in the economic growth models.This way can clarity the direct effect of fiscal decentralization on economic growth,but probably neglect the indirect effect of fiscal decentralization.Fiscal decentralization may indirectly affect economic growth by affecting those variables which would affect economic growth.We argue that in transition country,the indirect effect may be more important,so neglecting the indirect effect may lead to inappropriate evaluation of the effects of China's fiscal decentralization on economic growth.The essence of economics is trade-off,Wise said:"The disadvantages of the two-phase value evils,the right to choose the two-phase re-Lee." The Government has always pursued multi-goal,nowadays China's development strategy is adhere to scientific outlook on development,to promote regional,urban and rural areas,people and nature,man and society etc over-all development.But under current economic growth -oriented evaluation mechanism it is worth study the topic about to what degree other economic and society goals realizes meanwhile government pursues economic growth.So this article would expand the study of fiscal decentralization from the conceptual of economic to relative factors closely related to economic growth and evaluate both the direct effect of fiscal decentralization on economic growth and the effect of fiscal decentralization on those factors closely related to economic growth such as the regional market segmentation,the supply and Equalization of China's public service and local government efficiency which all relate to fiscal decentralization system.If there is only one level government or there is no fiscal decentralization in which local government is only the executing agency of central government,there is no doubt that will not have a market segmentation because local government can not benefit from segmentation.Also here is no doubt that will not have non-equalization of public service because the central government would offer uniform public service for all people.Local government also have no incentive to improve the efficiency. This article includes 9 chapters,which are organized as follows:Chapter 1 is the "introduction",which mainly introduces the study background and the problem and the structure of this article.Chapter 2 is about the evolution of China's fiscal decentralization,mainly focusing on fiscal tax share system reform since 1994,including the improvement and perfect of it.This chapter not only introduces the fiscal decentralization contents between central and local government,but also sub-provincial fiscal decentralization contents.Also this chapter summarizes county administrated by province fiscal system reform introduced by many provinces in China and introduces briefly the pilot reform of the dividing of fiscal expenditure responsibilities between sub-provincial governments taken by Hebei province.Chapter three is about the theoretical framework of the effect of the fiscal decentralization on economic growth.At first reviewing the relative arguments about the effect of the fiscal decentralization on economic growth including the arguments favoring fiscal decentralization and cautioning against fiscal decentralization. Secondly this chapter introduces the existing theoretical model about the effect of fiscal decentralization on economic growth including endogenous growth model, augmented Solow growth model or neo-classical growth model,two sector structural growth model and government acts growth model.Thirdly,based on the existing growth model,this chapter construes an combined theoretical framework about the effect of fiscal decentralization on economic growth reflecting both direct and indirect effects.Chapter 4 investigates the effect of provincial fiscal decentralization on provincial economic growth using ordinal fixed effect panel-data model and threshold fixed effect panel-data model.Finding that:(1)the effect of provincial fiscal decentralization on provincial economic growth depends on which index was used to measure fiscal decentralization.(2) there exists nonlinear relationship between provincial fiscal decentralization and provincial economic growth.(3) fiscal decentralization has different level effect on economic growth depends on different economic development level,different marketlization level,different fiscal decentralization level and different fiscal allocation order.(4) physical capital has different effect on economic growth depends on different fiscal decentralization.Chapter 5 expands the fiscal decentralization level to sub-provincial government based on chapter four to investigate the effect of over-all sub-provincial fiscal decentralization on provincial economic growth.Finding that:(1) sub-provincial expenditure decentralization has positive effect on growth rate of real per capita GDP at the province level,but sub-provincial revenue decentralization and fiscal self-sufficient ratio has negative effect.(2)Also this paper divides the sample according to geographic location,sub-sample also supporting that sub-provincial expenditure decentralization has positive effect on economic growth.But sub-provincial revenue decentralization is positively correlated with economic growth of provinces in east and negatively correlated with the economic growth of those provinces in middle and west.Sub-provincial fiscal self-sufficient ratio is positively correlated with economic growth of provinces in middle and negatively correlated with the economic growth of those provinces in east and west.(3) as the provincial fiscal decentralization,there also exists economic development and marketlization level threshold effects between sub-provincial decentralization and provincial economic growth.The effect of sub-provincial fiscal decentralization on provincial economic growth is significant different from each other in different threshold area.Chapter 6 expands the fiscal decentralization level to prefecture level based on chapter four and chapter five to investigate the effect of prefecture level fiscal decentralization on economic growth at prefecture level using linear fixed effect panel-data model,quadratic nonlinear fixed effect panel-data model and threshold fixed effect panel-data model respectively.Finding that:(1) by large,it has significant positive relationship between the prefecture level fiscal expenditure decentralization and economic growth at prefecture level,but the prefecture level fiscal revenue decentralization and fiscal self-sufficient ratio are negatively correlated with economic growth at prefecture level.(2) there existing significant quadratic nonlinear relationship between the prefecture level fiscal expenditure and revenue decentralization and economic growth at prefecture level.The fiscal expenditure fiscal decentralization has inverted u shaped effect on economic growth,but the fiscal revenue decentralization has U shaped effect.There is no significant quadratic nonlinear relationship between fiscal self-sufficient ratio and economic growth at prefecture level.(3) there existing significant threshold effect of fiscal decentralization on economic growth at prefecture level,fiscal decentralization has significant different effect on economic growth depending on different economic development level,different fiscal decentralization degree and different industrious structure degree.(4) different dimensional fiscal decentralization will influence each other,and the effect of fiscal decentralization on economic growth depends on other dimensional fiscal decentralization degree.It is one of the important reasons causing the complexity of the impact of fiscal decentralization on economic growth,so when investigating the effect of fiscal decentralization on economic growth,it should be noted this complexity and can not draw conclusion only from the empirical results arbitrarily.Chapter 7 mainly investigates the effect of fiscal decentralization on market segmentation.Firstly,it measures 378 province-to-province market segmentation degrees using regional RPI data.Finding that province-to-province markets segmentation degree shows evenly downward trend after shortly enlarging.Domestic market integration degree improves.Based on it,it also measures the mean market segmentation degree at provincial level and over-all country level,finding that since 1995 the integration degree has enhanced,then it uses Chinese provincial panel data from 1986-2005 to study the effects of fiscal decentralization on market segmentation, and this paper focus on the effect of fiscal decentralization.Finding that fiscal decentralization especially revenue decentralization strengthens market segmentation and hinders domestic market integration.Using the provincial segmentation data sets, this chapter also investigates the effect of market segmentation on economic growth adopting ordinary regression and quantile regression separately.The coefficients of present period segmentation and lagged segmentation are negative in total,but there is big difference in different quantile distribution.Fiscal decentralization surely affect economic growth through affecting market segmentation. Chapter 8 mainly investigates the effect of fiscal decentralization and central transfer on the supply and equalization of regional public health service.It describes the current position of the supply and equalization of regional public health service. Then empirically investigates the effect of fiscal decentralization and central transfer, finding the result depends on which fiscal decentralization index adopted and which public health service index adopted.(1) On the whole fiscal decentralization enlarge the disparity of per-capital budgetary expenditure on public health and number of hospital beds per 10000 population,but the effects of fiscal decentralization on number of employed persons in health institutions per 10000 population depends on which fiscal decentralization index we take.The expenditure decentralization enlarges the disparity of the number of employed persons in health institutions per 10000 populations,but to some degree revenue decentralization and fiscal self-sufficient ratio help narrow the disparity.(2) fiscal decentralization improve the supply of per-capital budgetary expenditure on public health and hospital beds.Expenditure decentralization has positive effect on the ratio of budgetary public health expenditure over budgetary expenditure and GDP,but revenue decentralization and fiscal self-sufficient ratio has negative effect.The relationship between fiscal decentralization and number of employed persons in health institutions per 10000 populations is negative but not significant statistically.(3) central transfer did not narrow the disparity of per-capital budgetary expenditure on public health,but it helps narrow the disparity of accessible public health service according with the theory which argues that transfer can narrow regional public service disparity.(4) central transfer increases the supply of accessible public health service and per-capital budgetary expenditure on public health,but it has negative effect on public hearth products not significant statistically.And it has not significant effect on the ratio of budgetary public health expenditure over GDP statistically,but it has significant effect on the ratio of budgetary public health expenditure over budgetary expenditure.Chapter 9 use DEA to measure local government efficiency from different input-output combinations such as over-all expenditure and output combination, budgetary expenditure and extra-budgetary expenditure and output combination, revenue and output combination.Then based on the measure results,it investigates the effect of fiscal decentralization on local government efficiency adopt spatial panel-data model.Finding that:(1) under the same output index,the local government efficiency measured by DEA will be different depending on which input index taken. So it is caution to the input and output index when measuring government efficiency using DEA.(2) there is significant spatial effect and the spatial overflow coefficients are all positive significantly statistically regardless of what input-output combination taken.There exists yardstick competition among local government,s a local government will improve the efficiency of the areas adjacent to it.(3) excludes fiscal self-sufficient ratio,other fiscal decentralization indexes has negative effect on local government efficiency regardless of what input-output combination,taken.The main innovation points are as follows:Based on the existing growth model,this article construes an combined theoretical framework about the effect of fiscal decentralization on economic growth reflecting both direct and indirect effects.It investigates the effect of fiscal decentralization of economic growth systematically,including the effect of provincial fiscal decentralization on provincial economic growth,the effect of over-all sub-provincial fiscal decentralization on provincial economic growth,also it investigates the effect of fiscal decentralization on economic growth at prefecture level.It not only investigates the linear effect but also the nonlinear effect of fiscal decentralization on economic growth.Meanwhile it adopts threshold panel-data model to investigate the effects of fiscal decentralization from different angle.According to synchronic Structure of Institutional Linkage theory,it empirically tests whether the effect of fiscal decentralization on economic growth would be affected by other institution such as market institution and financial allocation order and other dimensional fiscal decentralization institution.It is firstly investigates the effect of fiscal decentralization and central transfer on the supply and equalization of regional public health service in order to provide basis for decision-making of perfecting fiscal decentralization institution and transfer payment institution.Another contribution is measure the relative regional segmentation degree and local govemment efficiency based on existing approach.And it investigates the effect of fiscal decentralization on regional segmentation and government efficiency adopting ordinary panel-data model and spatial panel-data model respectively.