Political Promotion And Tax Assignment:A Study On The Incentive Mechanism Of Local Governments In Contemporary China

The incentive mechanism of local government is one of the most significant mechanism in political process of contemporary China.This mechanism,as an institutional arrangement,guarantees that government power can perform its public functions.Also,it is the key to the governance system of contemporary China.The task of this thesis is to reveal the characteristics and history of motivating measure of the central government,and to analyze the models and effects of the incentive mechanism of local government,and to explore the problems of the incentive mechanism and the ways of remedying the problems.This task is carried out under the perspective of inter-government relationships and based on theories of incentive,principal-agent,inter-government,and bureaucracy.The study shows that local governments face three governance problems in contemporary China.The first problem is that local governments and officials lack incentive of governance because there are few demand pressures from below and peer supervision.The second is that local governments and officials cannot fulfill the governance requirements set by the central government because they focus on and solidify their own interests,an autonomous tendency which is indispensable of bureaucracy system.The third problem is that since the relationship between central and local governments are built as a principal-agent relationship,there are conflicting goals and asymmetric information between the central government and local governments.Given the three problems,it needs effective motivating measures to improve the governance efficiency of local governments and make them complete what the central government set for them.It is also argued in this thesis that the incentive mechanism of local governments in contemporary China is consist of political and fiscal incentives under the ‘centralization-decentralization-competition' system.The inter-government relationship conforms to a ‘centralization-decentralization-competition' model.On the one hand,there is political centralization and fiscal and administrative decentralization between the central government and local governments.On the other hand,local governments compete with each other on each level.Local governments are mainly driven by two types of incentives under the ‘centralization-decentralization-competition' system: political and fiscal incentives.The political incentive mechanism has three pillars:(1)the cadre management system which is from top to bottom but assigns the management of the lower level to each level of governments;(2)the administrative decentralization which is characteristic in territorial administration and administerial contracting;(3)the competing relationship among local governments on the same level which is formed by the competitive selection and appointment of cadres and the assessment of their performance.The local officials on the same level,under these conditions,have a competition for promotion which is centered on fulling the assigned task from the central government if they want to be promoted.This thus reconciles the private interest of local officials and the policy preference of the central governments,and it also generates active local officials and completed goals of the central government.Like the political incentive mechanism,the fiscal incentive mechanism is created on three foundations:(1)the reform which aims at fiscal decentralization;(2)the adjustment for a moderate fiscal centralization;(3)the competition for tax resource and revenue among local governments.Therefore,local governments have the incentive to increase their tax revenue and fight for the finance transfer from the central government by their performance.The study reveals that the incentive mechanism of local governments,although works overall,has the problems of incentive unbalance and distortion.The incentive mechanism effectively promotes the economic growth and the supply of the local public goods.It also guarantees that the will and policy of the central government can be implemented,and that the governance goals of the state can be achieved.However,there is also a downside of this mechanism,that is,some problems arise in the political tournament model and the strong incentive mechanism.The governmental competition,as a zero-up game,leads to the vicious economic competition among regions,and causes local protection.The economic consequences negatively affect the economic integration of different regions and the well-functioning of market economy and eventually economic growth.Since the tournament model is yardstick competition,local officials tend to ignore the long-term governance goals and consequences and mainly focus on their economic performance,which is measurable when they face multiple dimensions and governance tasks.This thus cause such problems as insufficient public expenditure on education and health care and the ineffective ways of controlling environmental pollution.It calls for some measures to reform and improve the incentive mechanism of local governments in order to remedy these problems.First,the assessment and evaluation from below needs to be established.If local officials are evaluated by those who are governed by them,and if the evaluation result is publicity and compared among different departments and governments,local governments would be motivated to improve their attitudes and efficiency.Second,peer-supervision needs to be enhanced.The internal supervision institutions such as the People's Congress and the People's Political Consultative Conference can be used to evaluate the performance of local government and thus play a role in the promotion,appointment,and removal of local officials.Third,the evaluation system of the local governments needs to be improved.To make the incentive mechanism more balanced needs to add weight to the indexes about education,health care,civil administration and environmental governance.