Four essays on intergovernmental fiscal relations, intergovernmental monetary relations, and policy changes in China

This dissertation consists of four essays. The first essay, "Modelling Central-Local Revenue-Sharing Relations," discusses the impact of the lack of credibility of the Chinese central government on localities' revenue collections. The model shows that under the Chinese system, the center's pre-announced revenue-sharing methods are time-inconsistent. Without a mechanism that can force the central government to commit to the pre-announced policy, the localities are tempted to reduce their tax collection efforts. The finding of the model suggests that applying a rule that restricts the center's frequent revision of revenue-sharing methods may help solve the time-inconsistency problem.; This second essay, "Regions' Lobbying, Time Inconsistency, and Expenditure Determination," analyzes the process of expenditure target formation in the framework of a central-local game. It is shown that under a system of soft-budget constraint--a system that does not prohibit regions' lobbying for transfers from the center after the budget is officially approved by the Congress--the regions make too much lobbying efforts and result in excessive expenditure expansion, compared to the system of hard-budget constraint in which such ex post lobbying is prohibited.; This third essay, "Central Government Credibility and Economic Overheating," develops a game theoretic model which shows how China's economic overheating over the past decade can be a consequence of its decentralized financial system. It is shown that in order to induce a higher credit ceiling from the central bank, the local banks purposely under-invest in the center's priority project. Without a mechanism that can guarantee the central bank's commitment to the pre-announced credit ceiling, the central bank will have the ex post incentive to revise the ceiling upward, thus creating inflation.; In the fourth essay, "A Dynamic Model of Policy Change: The Case of Chinese Agricultural Policy," a dynamic model is developed to explain the abrupt changes in China's water conservancy policy over the past decade. The model shows that the government's rational learning about the frequency of destructive flood can lead to an investment policy that is "mistaken" from ex post point of view.