Fiscal decentralization, public spending and economic growth: The experience in the post-reform China

This dissertation is devoted to economic growth and fiscal reform in China.; Among head-spinning changes caused by a series of sweeping economic reforms since the late 1970s, rapid economic growth and sharp decline of government holdings of public resources have been two important features of reforms in China. Two questions arise. First, have fiscal reforms contributed to economic growth and if so how? Second, have fiscal reforms enabled lower levels of governments to take more revenue from their own sources?; This dissertation represents an effort to answer these questions. In summary, it finds that: (1) Fiscal reforms since the late 1970s have failed to provide incentives for lower levels of government for their revenue collection. (2) Fiscal reforms have not improved economic efficiency nor have they promoted economic growth.; This dissertation consists of six chapters.; Chapter 1 introduces the main questions of this dissertation.; Chapter 2 provides detailed information on sources and significance of fiscal reforms in China. It finds that fiscal reforms do not yield a clear pattern of fiscal decentralization.; Chapter 3 builds a principal-agent model which provides theoretical insights on the role of incentives between various levels of governments. The main conclusion of the model is consistent with the optimal tax theory in that lower levels of government will reduce their effort in revenue collection when they share revenue with the central government.; Chapter 4 contains an extensive empirical examination of provincial performance on revenue collection and fiscal effort since the late 1970s. It demonstrates a general failure of the fiscal contracting system in promoting provincial revenue effort.; Chapter 5 relates fiscal reform to economic growth. A growth model is developed and empirical evidence is explored. Surprisingly, it finds a negative association between fiscal decentralization and economic growth, contradicting the traditional argument that fiscal decentralization usually makes a positive contribution to economic growth.; Chapter 6 concludes this dissertation.