Study On Spatial Allocation Effect Of Local Governments’ Fiscal Competition On Factors Of Production

Although China have obtained continuous high-speed economic growth over 30 years, which has already captured worldwide attention,there’s no matching high productivity since China’s reform and opening up. On explanation of this paradox, we need to focus on the essence of China’s economy reform and Chinese political administrative system alongside. In the government-led socialist market economic system, local governments have enormous ability to intervene economy in many areas. Meanwhile, local governments have been motivated to intervene economy operating by the competition for political and economic interests under the coexistent of governance structure of political centralization and fiscal decentralization in China. Under this circumstance, local governments have become quasi-entity of allocation of production factors after constant intervention on factors allocation by fiscal policies and administrative measures. However, there’s no enough concern on the factors allocation effect of local governments’ fiscal competition in academia, and most researches concentrate on testing the existence of local governments’ fiscal competition and also its effect of economic development. This study situation greatly deviated from China’s reality of the government-led socialist market economic system. Aimed at the deficiencies in existing researches and realistic problems, this paper theoretically and empirically discussed the effect of local governments’ fiscal competition on spatial allocation of capital and labor in order to provide some theoretical support and practical guidance for more efficient and sustainable development from the aspect of system reform and optimization.Based on the analysis of the characteristics of capital flow and labor flow, this paper explores the affecting factors such as differences in factor endowment and price, factor accumulation, geographical advantages, macro-control of governments and their influence mechanism.Based on an 28-year macroeconomic panel data base of 231 prefecture-level cities, this paper describes and quantifies the characteristics and differences in time and space of local governments fiscal competition implying spatial econometric panel model, and calculated out spatial allocation efficiency of capital and labor in Chinese provinces borrowing the Jeffrey Wurgler thought. On this basis, this paper examines the spatial allocation effect on capital and labor of prefecture-level city governments’ fiscal competition on VAT, infrastructure spending and other important tax and fiscal expenditure items from the aspects of both allocation quantity and allocation efficiency. These effects are significantly different in the early years of China’s opening-up and reform and in recent years. The formation and evolution mechanisms of this spatial allocation effect have been dissected in the context of China’s political governance structures and fiscal reform.Finally, this paper analyzes the institutional reasons of negative effect of local governments’ fiscal competition on spatial allocation efficiency of capital and labor according to local governments’ behavior characteristics in China. Some policy suggestions have been put forward including establishing punishment mechanism of excessive competition, performance evaluation of service-oriented government and enhancement cooperation among local governments.