Fiscal Sustainability And Expenditure Structure Of Local Governments In China

Since entering the new era,the pursuit of quality and efficiency is the main theme of economic and social development.Adhering to the people-centered development thought and taking the road of high-quality development has become the most essential requirement.As the important foundation and pillar of governance,it is natural to provide fiscal support for doing a good job in people’s livelihood and improving people’s well-being.However,under the Chinese-style decentralization,there is a mismatch between the devolution of spending responsibilities and revenues,and the policy objectives of central and local governments are often inconsistent.Thus local governments show a tendency of emphasizing infrastructure and neglecting people’s livelihood.By investigating its mechanism,we can see that there are not only the influence of political incentive and government competition factors,but also the role of pressure-type fiscal incentive system.At present,China has obviously accelerated the reform process of fiscal relationship between central and local governments.Under this background,it is of great significance to pay attention to the current expenditure bias of local governments under the requirements of balancing economic development and people’s livelihood.This is conducive to further promoting the reform of fiscal devolution among sub-provincial governments,driving high-quality economic development and improving people’s well-being.Based on the issues of government reform,fiscal risks and people’s welfare in the new era,this paper pays attention to the influence of fiscal system factors on government expenditure behavior under the framework of Chinese-style decentralization,which including the effects of mismatch between expenditure and revenue,fiscal sustainability pressure,transfers and land finance.According to the idea of step by step,combined with the panel data of 299 cities in China from 2015 to 2019,this paper mainly discusses three aspects.First,it studies the fiscal sustainability risks of local governments facing limited fiscal revenue growth,rigid expenditure demand and increasing difficulty in budget balance.The fiscal surplus and debt are included in the present value of intertemporal budget constraint,the fiscal response function of surplus to debt is described by constructing a dynamic nonlinear panel model,and the fiscal sustainability index is measured by the difference between the debt ceiling and the actual debt,which fully reflects the fiscal pressure accompanying the implementation of the activist fiscal policy.Second,it explores the effect of pressuretype fiscal incentive mechanism under the framework of Chinese-style decentralization.The panel simultaneous equation models are constructed to focus on the mutual influence among decentralization,fiscal sustainability and government expenditure structure,and to provide empirical evidence for strengthening fiscal support for people’s well-being in the new development stage.In addition,this paper explores the mechanisms of pressure inherent in government competition and political promotion that affect the structure of government spending.Third,it investigates the influence of local government’s fiscal sustainability on educational efforts,and pay attention to the effect of the transfers and land finance.By constructing a panel fixed effect model and introducing interactive terms into it,this paper tests the direct effect of fiscal sustainability pressure on education expenditure and the moderating effect of transfers and land finance on educational efforts influenced by fiscal sustainability.This paper attempts to provide solutions for improving people’s well-being and promoting fiscal sustainability in the new development stage by answering the above three main questions.The main conclusions of this paper are as follows.First,the fiscal pressure of local governments in China increases with fiscal gap.Facing the debt expansion,the fiscal surplus has a significant positive response to control the fiscal risk.Although fiscal fatigue has already appeared,most cities in China are still in a state of fiscal sustainability.Second,fiscal decentralization and vertical fiscal imbalance have significant negative direct effects on local government expenditure policy,while the pressure-type mechanism of fiscal sustainability further strengthens the expenditure tendency of emphasizing infrastructure and neglecting people’s livelihood.Third,the fiscal sustainability risk causes local governments to give priority to investing in infrastructure construction and reduce their educational efforts.The transfer system plays an important role in ensuring the supply of public goods and services,which is conducive to making up for the lack of education investment.The local government’s investment in education expands with the increase of transfer payment.Based on the above research conclusions,this paper holds that people’s livelihood expenditure should be ensured through the coordination of system reform and policy adjustment under the condition that the sub-provincial governments relation still tend to underprovide public services that benefit local residents.It can be understood from the following four aspects.The first is to balance the relationship between effectiveness and sustainability,which is improving development quality and enhancing fiscal sustainability through macro-governance.The second is to balance the relationship between developing economy and improving people’s livelihood,which is exploring policy measures that can take into account the requirements of development and people’s livelihood at the same time.The third is to balance the relationship between fiscal reform and fiscal policy,which is ensuring people’s welfare by building intergovernmental fiscal relations with clear responsibilities,coordinated fiscal resources and balanced regional development.The fourth is to balance the relationship between local conditions and common prosperity,which is solving the problem of regional insufficient and imbalance development and promoting the realization of the goal of common prosperity for all people.