The Research On Fiscal Decentralization And The Provision Of Basic Public Services In China

The paper researches the provision of basic public services in the dynamic processes of China's transition under the institutional background of fiscal decentralization, and tried to analyze the institutional constraints on the provision of basic public services by the existing system of fiscal decentralization from three perspectives ideas on the external environment, internal incentive and institutional design. As China's fiscal decentralization system still being in the dynamic process of improvement, the research can provide policy recommendations on the improvement of fiscal decentralization system, so as to provide institution protection of the level of the provision level of public services. The paper attempts to explain:China's current financial decentralization system is imperfect, in terms of the external environment constraints, bias or distortions in the form of incentives or the system design flaws, etc. to assess, and there is not the theory meaning of contributing to the provision of basic public services. If does not systematic adjust the fiscal decentralization from the institutional level, there would be exist the widespread lack of of basic public services phenomenon. The provision of basic public services is suppressed because of the fiscal incentives within the current fiscal decentralization has been magnified. The circumstances that the design of the system is not perfect that the imperfections in the transfer payments, and affair right and control over wealth is not matching,and financial incentives that have been amplified could not be adjusted, but would increase the incentive bias and incentive distortions. Therefore, both appropriately changing financial incentives and systematically reforming the financial system should be two-pronged improve the fiscal decentralization system.In a general sense the merit of fiscal decentralization on the provision of basic public services is that it can provide more accurate in their different preferences in line with population. But the current reality in China is that serious deficiencies of basic public services and that basic public needs being met is greater emphasis on. It seems that the Centralization should be more advantage. However, this article would like to emphasize that, as the decentralization has become a normal operation in the world economy, no matter how effective the decentralization is, the decentralization in the form seems to have irreversible. And the drawbacks of centralized are too serious so far it can not find a better way to correct the negative effective of centralized economy. Therefore, even if the decentralization has one way or another shortcomings, the more policy options are still the adjustment of the degree of decentralization, and through other supporting policies and institutions designed to improve the effectiveness of the decentralization.The paper firstly reviews the literature on exploring the relationship between the provision of public services and fiscal decentralization. According to the current literature, the mainstream scholars which research on the reasons for the current lack of public services focused on the judge the merits of the tax system in 1994 in China and public finance reform. The paper argues that such a study is too straightforward emphasis on how to reform to put forward the convincing explanation on the relationship between the China's Fiscal Decentralization and the provision of public services, so which is lack of theoretical depth, and thus is also lack of practical guidance. If does not systematically taking into account for fiscal decentralization, and just think over from one aspect or a particular area of reform, the effective would be subject to control or not obvious.The paper not only has given a more detailed literature review which related the relationship between fiscal decentralization theory and the provision of public services, but also focused on the institutional constraint on the provision of basic public services by China's fiscal decentralization system. The systemic failures in which the basic public services are provided by the Fiscal Decentralization System has not been sufficient attentioned in the mechanism design and implementation of the practice, and has led to the inadequate effects of policy measures improvement. Since China's reform and opening up, the level of basic public services once lag behind the economic growth, and to the current stage of economic development, the provision problems of basic public services continue to accumulate forming a heavy cost of reform. However, many policies and measures adopted incurrent generally tend to transfer payments, and neglect making the right judgments and rational explanation on the institutional reasons, and thus incentives and low bias efficiency on the provision of basic public services is still not eliminated. In fact, the fundamental lies in by deepening the reform to create, improve and protect the system of provision of basic public services in China. On the basis, the paper attempts to the institutional reasons for the lack of basic public services in China relying on the theory of fiscal decentralization from the external environment, internal motivation and design of the system analysis of three perspectives. As the theoretical framework, the paper's theoretical model parts expand the models of Basley (2003) and Lockwood (2002) through relaxing of government functions assumptions and joining the new variable. The theoretical model part used mathematical methods on the institutional causes of the financial decentralization to mathematical proof.Further, the use of the provincial level panel data in 1999-2007 period empirical analyzed the effect of fiscal decentralization on the provision of basic public services.The empirical analysis method is the spatial error model estimation method, taking into account the disturbance of space-dependence characteristics, as a result of improving the effectiveness of the empirical estimation results. The regression results validate the hypothesis proposed in this paper. Finally, the paper puts forward the relevant feasibility of policy recommendations by drawing on foreign experience.From the theoretical sense, the research could enrich for Public Economics and Finance of the economic theory, and contributed to the development and improvement of the theory of China's public finance. From the practical sense, the research would help the institutional transformation of government functions, and develop targeted policy measures in order to compensate for China's general lack of basic public services.