China’s Local Government Behavior, Intergovernmental Transfers And Economic Growth

After practicing reform and open policy, China creates steady and high economic growth which has been called "growth miracle" by the economist. From the traditional economic growth theory, China does not have the necessary for economic growth of the natural resources endowment, material and human capital accumulation and technology. Economists agree that Chinese local governments play the important role in promoting the regional economic growth, local officials sought to everything possible to promote economic growth, their energy and enthusiasm in local economic growth is rare around the world. This article focuses on the local government behavior and motivation behind their economic activities, whether there are heterogeneity in local officials’ behavior.Research related with the economic growth and local government is immense, these studies implied an assumption that the local governments have and can use all possible resources (fiscal revenues) and tools (fiscal expenditure) to promote local economic development. Since the tax reform in1994, a large portion of the local government’s fiscal revenue is the intergovernmental transfer from the central government, China has become the one of the largest local fiscal expenditure and one of the largest countries depending on fiscal intergovernmental transfer. Intergovernmental transfer as the main source of local governments’ fiscal revenue, it is one of the important resources for local governments promoting economic development. How local governments’ political behavior will affect the distribution and implementation of intergovernmental? This is a question have to be discussed. At the same time, based on the above study, we further discuss the local government officials’ individual heterogeneity impact on local economic development.Based on the background and institution, this article discusses how local governments’ behavior affect the decision of central government in allocation of intergovernmental transfer, and then discuss after the distribution of intergovernmental transfer to local governments, whether the local governments will be in accordance with the central policy goals to perform, we finally standing by the perspective of official individual heterogeneity, discuss the relationship between the officials’ overconfidence and regional economic growth. This article concludes below: (1) The appointment and promotion of the local government officials are directly decided by the central government. Under the Chinese specific personnel management system, local officials have different political relations and bargaining power with central government. Their political ability and behavior may affect the distribution and implementation of intergovernmental transfer. We found that local officials have close connection with the central government will affect the distribution of intergovernmental transfer, the jurisdictions they work for will get more transfer than others. Provincial party secretary and appointed directly from the central officials will increase the intergovernmental transfer distributed to their jurisdiction. When given minority areas more transfer by the central government, local government will not completely in accordance with the policy objectives that narrow the gap in the level of local public goods among regions, but increase the local government corruption.(2) Under political centralization and fiscal decentralization, different local governments will influence of the distribution of intergovernmental transfer and economic growth significantly. Chief executive and party secretary have different impact on the distribution of intergovernmental transfer, because party secretary is directly appointed by the central government, closer connections with the central government will get more transfer than others, the chief executive who is responsible for daily transactional work have little impact on the transfer. Moreover, the central government and local governments have different political considerations. National stability is one of the most important goals in the central government’s political considerations, central government tend to give more transfer to the potential unrest regions. In this article, we found that central government will be more likely to give more transfer to the regions have large scale of minority population. In this paper, we also analyze whether the county government receive unexpected transfer will achieve the central government’s policy, different with provincial government officials make their efforts to accomplish the policy in order to get promotion, the county government has not completed policy goals, but exacerbated the level of local government corruption. When we consider the local government officials’ personal traits will affect local economic growth, we found that the behavior of local officials are not the same, not all the officials are pursuing a promotion, but have their personal political ambitions.(3) Local government officials’ individual characteristics heterogeneity leads to different local economic growth, not all the officers are in pursuit of a promotion, but have personal ambition and political pursuit. Local governments in plays an important role in the economic development historical process of China, local officials in command of the local economic development and planning. The heterogeneity of local officials cannot be ignored, it also helps us understanding the significantly difference of economic development and supply of public goods among regions where all the provinces accept the same incentive and the management pattern from central government, which ruled out the natural factors and other factors. We found that overconfidence, as one of the important officials’ personal traits, place a significant positive influence on economic growth, especially for the provincial party secretary, the effect is very significant and the result is robust.