Research On Macroeconomic Effect Of Fiscal Decentralization

Since reform and opening up,China’s economy has created unprecedented "growth miracle".Traditional economics attributed to physical and human capital accumulation,the initial conditions such as resources endowment,and technical innovation,but it cannot fully explain effectively "miracle" of economic growth in China,and the introduction of institutional change,is to explain China’s "growth miracle" provides a new research direction,Economic growth originates from the optimal decisions of individuals in the economic environment.Therefore,there must be institutional arrangements corresponding to it behind the appearance of high-speed economic growth to stimulate individual behavior in the economic society.China’s institutional model is obviously different from the traditional institutional paradigm in Western economic growth research.Therefore,exploring the unique institutional factors of China has become an important direction to explain the "miracle" of China’s economic growth.The financial relationship between the central and local governments is an important aspect involving the overall development of national polity and economic society.Among them,the fiscal and taxation system reform represented by fiscal decentralization is the key link of China’s fiscal reform,and the fiscal relationship between the central and local governments,as the key point in the reform process,has attracted the attention of the government and all sectors of society.In both developed and developing countries,the trend of fiscal decentralization is becoming more and more obvious.Its purpose is to provide better services for economic development based on local governments making full use of their advantages in information and management.The fiscal decentralization system with Chinese characteristics is different from the fiscal decentralization system of developed countries in Europe and the United States,which is reflected in the central government’s ability to maintain political centralization and motivate local government officials while maintaining fiscal decentralization.Specifically,fiscal decentralization with Chinese characteristics is a reflection of economic decentralization and political centralization,fiscal decentralization and economic growth primarily appraisal mechanism to strengthen the local government’s own interests,prompted the local government in the economic development in the field of the trend of expansionary fiscal spending,and the central government in the leading position of the whole financial allocation and absolute authority to local government officials appointed,It ensures that the central government has a strong financial and administrative means to restrain and regulate the actions of local governments.Since the Third Plenary Session of the18 th CPC Central Committee,under the framework of the modern fiscal system constructed from the budget system,the tax system and the fiscal system,the reform of the fiscal system with the relationship between the central and local governments as the core has become the primary task.Therefore,the construction of a multi-level government framework,which can present the characteristics of fiscal decentralization,the heterogeneity of central and local fiscal expenditures,and reflect the different fiscal expenditure structure of the theoretical model,has become the focus of theoretical research in the fiscal relationship between the central and local governments.This paper is divided into seven chapters.Based on the ideas of explaining problems with characteristic facts,constructing models to analyze problems and putting forward policy suggestions to solve problems,this paper studies the influence and transmission mechanism of fiscal decentralization on industrial structure,economic fluctuations and environmental policies,and evaluates policy effects through counterfactual analysis and welfare analysis.Chapter 1 is the introduction.This paper describes the research background,research significance and main research content,summarizes the research methods used in this paper,and summarizes the innovation and shortcomings of this paper.Chapter 2 is literature review.Firstly,it combs the research status of dynamic finance theory of different schools.Then,it reviews the development of fiscal decentralization theory and summarizes the macroeconomic effects of fiscal decentralization at home and abroad.Finally,the existing relevant literature is reviewed to highlight the research value of this paper.Chapter 3 is the practice of fiscal decentralization theory in China.This paper briefly introduces the highly centralized financial system implemented from the founding of New China to the period of reform and opening up,the hierarchical and exclusive financial system in the early stage of reform and opening up,and the tax sharing financial system since 1994,and deeply analyzes the influence of the financial system in each stage.Chapter 4 is urban-rural heterogeneity and the macroeconomic effect of fiscal decentralization.Firstly,the VAR model is used to analyze the characteristics of macroeconomic effects of government investment expenditure in urban areas and government investment expenditure in rural areas,so as to provide empirical support for the key hypothesis of positive externality of government investment expenditure on total output.Second,in the new Keynesian DSGE models,on the basis of fully considering the characteristics of China’s urban and rural dual economic structure,embedded in the model in the enterprise heterogeneity,divided into urban and rural firms to manufacturers,and in urban and rural departments of production function is introduced into government investment spending on the output of positive externalities,according to the characteristics of tax allocation,This paper investigates THE proportion of financial and administrative power of central and local governments,and then constructs a simple new Keynesian DSGE model of multi-level government.Then,using the relevant data from the first quarter of 1996 to the fourth quarter of 2021,the model parameters are estimated by Bayesian maximum likelihood to simulate the impact of fiscal decentralization on industrial structure.Finally,on the basis of the benchmark model,this paper further makes a counterfactual analysis of the change of fiscal expenditure decentralization degree and quantifies the multipliers of different types of multilevel government investment expenditure,so as to provide a basis for policy evaluation.Chapter 5 is fiscal decentralization,local government behavior and government expenditure multiplier.Firstly,the characteristics of macroeconomic effects of government investment expenditure and government consumption expenditure are analyzed by SVAR model,which provides empirical support for the two key hypotheses: the positive externality of government investment expenditure on aggregate output and the complementary relationship between government consumption expenditure and household consumption.Secondly,on the basis of the multilevel government New Keynesian DSGE model in Chapter 4,the complementarity between government consumption expenditure and resident consumption is further introduced into the utility function of representative households,and the local government’s preference for pursuing economic growth and government consumption is introduced into the objective function of local governments.Moreover,the endogenous reaction mechanism of multi-level government fiscal expenditure and tax distortion to debt scale is introduced.This model can describe the characteristics of fiscal revenue decentralization and fiscal expenditure decentralization well.According to the first quarter of 1996 to the fourth quarter of 2021 the relevant data,using the bayesian maximum likelihood estimation parameters,the simulation in the monopoly competition market,price stickiness,investment adjustment costs and characteristics,the monetary policy of the central government how to influence the behavior of local government and local government spending preferences in the motive behind the investment spending.Finally,on the basis of the benchmark model,the counterfactual analysis and welfare analysis of the change of fiscal expenditure decentralization degree are further discussed.Based on the steady state of the model,the multipliers of different types of multilevel government fiscal expenditure are further calculated to provide the basis for the difference of fiscal expenditure effect of multilevel government.Chapter 6 is fiscal decentralization,local government behavior and the macroeconomic effects of environmental policy.First,in the fourth chapter multistage government new Keynesian DSGE models,on the basis of introducing the environmental pollution of representative family utility negative influence,the government spending outside of environmental governance for the positive externalities of output,fiscal revenue decentralization and fiscal decentralization and other features,introduced in the objective function of the local government to pursue the economic growth of local government and environmental governance preferences.Secondly,using the relevant data from the first quarter of 1996 to the fourth quarter of 2021,Bayesian maximum likelihood estimation model parameters were used to deeply analyze the motivation behind local government fiscal expenditure preference to non-environmental governance expenditure and the macroeconomic effects of environmental policies.Finally,on the basis of the benchmark model,the counterfactual analysis and welfare analysis of fiscal expenditure decentralization degree and fiscal revenue decentralization degree are further discussed.Chapter 7 is the conclusion,policy enlightenment and prospect.Summarize the conclusion of this paper,provide policy reference for the establishment of modern financial system,and look forward to the future research focus.This main conclusions:First,the fiscal decentralization,local government behavior and the government spending multiplier study found:(1)the government spending on output has significant positive externalities,and at the same time to the residents of consumption and investment "into" effect,but the positive externality of local government investment spending outweigh the positive externalities of the central government investment spending.The aggregate supply effect produced by government investment can effectively restrain the rise of inflation.Government consumption expenditure has a "crowding in" effect on household consumption in the short term;In the long run,the negative wealth effect will completely crowd out household consumption.The increase of government consumption expenditure is beneficial to stimulate economic growth,but it is worth noting that government consumption expenditure will "crowd out" resident investment,which is not conducive to the growth of capital stock.Under the market characteristics of imperfect competition and price stickiness,the temporary increase of government consumption expenditure expands the aggregate demand and leads to the rise of the price level,so the inflation rate rises in the short term.In addition,the decrease of resident investment leads to the increase of capital returns and thus the increase of marginal costs,which will also lead to inflation in the short term.(2)Deepening fiscal decentralization makes the impact of multi-level government expenditure structure on macroeconomic variables fluctuate more in the short run,and the aggregate output,household consumption and investment will further increase.Firstly,from the perspective of deepening fiscal expenditure responsibility,the central government’s investment expenditure and consumption expenditure will increase after the deepening of fiscal decentralization.Secondly,from the perspective of deepening financial power,after the deepening of fiscal decentralization,local governments will get more proportion of fiscal revenue.Due to the bias of local government expenditure,more local government financial funds will be used for government investment expenditure.The aggregate demand and supply effects resulting from the increase in government expenditure will inevitably lead to a greater aggregate output after the deepening of fiscal decentralization.It can be obtained from the complementarity between government consumption and household consumption,and household consumption will also increase after the deepening of fiscal decentralization.In terms of household investment,deeper fiscal decentralization leads to higher returns on capital,which in turn increases the incentive for representative households to invest more.(3)from multistage government expenditure structure of multiplier calculation results,the local government investment spending multiplier and government consumption expenditure multiplier is significantly greater than the central government investment spending multiplier and government consumption expenditure multiplier(local government investment multiplier is 1.3943,the central government investment multiplier is 0.0702,the local government consumption expenditure multiplier is 0.495,Central government consumption expenditure multiplier 0.0793).(4)By comparing the benchmark model and the deepening of fiscal decentralization,we can see that the deepening of fiscal decentralization is conducive to the improvement of social welfare.Secondly,the welfare comparison of different local governments’ financial expenditure behavior shows that local governments’ financial expenditure favoring investment expenditure is conducive to the improvement of social welfare.On the contrary,if the local government financial expenditure is more biased towards consumption expenditure,the greater will be the loss to social welfare.Secondly,the study on the macroeconomic effects of urban-rural heterogeneity and fiscal decentralization shows that:(1)under the fiscal decentralization system,the positive externality of government investment expenditure in rural areas is larger than that in urban areas.The effect of local government investment expenditure on stimulating economic growth and employment is more obvious than that of central government investment expenditure on stimulating economic growth and employment.The increase of government urban investment expenditure will worsen the imbalance of industrial structure,while the increase of rural investment expenditure is beneficial to alleviate the imbalance of industrial structure.(2)After deepening fiscal decentralization,the positive externality of government investment expenditure will be further enhanced,and the total output,urban sector output and rural sector output will continue to increase.However,the negative wealth effect generated by the government’s urban investment expenditure will also be larger,and the decline of household consumption and household investment will be larger in the short term,while the labor supply will increase in the short term.(3)From the perspective of total multiplier,the total multiplier of central government investment expenditure is significantly larger than that of local government investment expenditure.From the perspective of structure multiplier,the multiplier of local government rural investment expenditure is larger than that of central government rural investment expenditure.From the perspective of industrial structure,the multiplier of government investment expenditure in rural areas is larger than that of government investment expenditure in urban areas.Third,the macroeconomic effects of fiscal decentralization,local government behavior and environmental policy are found:(1)the positive externality of local government’s expenditure on environmental governance on output is slightly larger than that of central government’s expenditure on environmental governance on output in the short run.The imposition of carbon tax increases marginal costs and decreases the willingness to produce,which leads to a decline in output.The increase of government expenditure will cause environmental pollution,mainly due to the increase of total output,which leads to the increase of carbon emissions.The degree of environmental pollution caused by non-local government environmental governance expenditure is greater than that caused by the central government environmental governance expenditure.However,the effect of the central government environmental governance expenditure on environmental pollution improvement is stronger than that of the local government environmental governance expenditure on environmental pollution improvement.The levy of carbon emission tax is beneficial to the improvement of the degree of environmental pollution,mainly because the levy of carbon emission tax will lead to the decline of output level,so that the carbon emission will also decrease with the decline of output level.(2)Deepening fiscal expenditure decentralization strengthens the positive effect of local government fiscal expenditure shock on aggregate output,but restrains the positive effect of central government fiscal expenditure shock on aggregate output.The negative impact of carbon emission tax shock on output will further increase with the increase of fiscal expenditure decentralization.With the increase of fiscal expenditure decentralization degree,the environmental pollution degree caused by the impact of external expenditure on environmental governance of local governments will be further aggravated,while the impact of external expenditure on environmental governance of central government will weaken the environmental pollution with the increase of fiscal expenditure decentralization degree.The impact of the environmental governance expenditure shock of the central government,the environmental governance expenditure shock of the local government and the carbon emission tax shock on the environmental pollution process will be further improved with the increase of fiscal expenditure decentralization degree.(3)The increase of fiscal revenue decentralization strengthens the positive effect of local government fiscal shock on aggregate output,but the increase of fiscal revenue decentralization strongly inhibits the positive effect of central government fiscal expenditure shock on aggregate output.The negative impact of carbon emission tax shock on output will further increase with the increase of fiscal revenue decentralization.The increase of fiscal revenue decentralization will further aggravate the impact of local government’s expenditure on environmental governance on environmental pollution,while the increase of central government’s expenditure on environmental governance will weaken with the increase of fiscal revenue decentralization.The impact of the central government’s environmental governance expenditure and carbon emission tax impact on the improvement of environmental pollution will be further strengthened with the increase of fiscal revenue decentralization.(4)Welfare analysis results show that deepening fiscal expenditure decentralization is conducive to improving social welfare and alleviating environmental pollution.Welfare analysis of different local government financial expenditure behavior shows that local government financial expenditure is biased towards environmental governance expenditure,which is conducive to the improvement of social welfare and the alleviation of environmental pollution.First,based on the research on macroeconomic effects of fiscal decentralization,this paper believes that the current fiscal decentralization system and the performance view based on GDP are the main motives that lead local governments to prefer investment expenditure to pursue regional economic growth.Second,the results of multilevel government expenditure multiplier show that although the effect of local government’s fiscal expenditure is better than that of the central government’s fiscal expenditure,the problems such as redundant construction,corruption and ecological environment caused by the large amount of local government’s fiscal funds used for investment expenditure are also worth our consideration.Third,further clarify the scope of the central and local government financial powers and responsibilities,a rapid transition to GDP is the norm,appropriate to improve environmental management,ecological protection and people’s livelihood index weight in official promotion evaluation system,incentive to adjust the expenditure structure of local government,both economic and environmental coordinated development,standardize local government non-tax revenue,It is an important breakthrough to construct the modern financial system to match the financial power of the central and local governments with their administrative power.Fourth,increase rural financial expenditure,provide more powerful financial guarantee for the implementation of the rural revitalization strategy,constantly improve rural infrastructure construction,and gradually eliminate the urban-rural dual economic structure.Fifthly,formulate reasonable emission charge standard,strengthen emission detection and management,and gradually improve environmental regulation.While strengthening fiscal decentralization to promote regional economic growth,the environmental negative effects caused by fiscal decentralization should be gradually weakened.The main contributions:First,from the perspective of fiscal decentralization and based on the DSGE analysis framework,this paper considers the promotion and economic incentives of the central government to local governments,and then affects the fiscal expenditure structure of local governments,and deeply analyzes the dynamic effects of the fiscal expenditure structure of multi-level government departments and tax distortions on the main macroeconomic variables.At the same time,by defining the multiplier of fiscal expenditure of multilevel government departments,the multiplier of government investment expenditure and government consumption expenditure of all levels of government departments is quantitatively analyzed.Second,from the perspective of fiscal decentralization and based on DSGE analysis framework,this paper considers the typical characteristics of urban-rural heterogeneity in China,and studies the dynamic characteristics of the main macroeconomic variables when the investment fiscal expenditure of multilevel government departments acts on the rural and urban sectors.At the same time,through the definition of aggregate expenditure multiplier and structural expenditure multiplier,quantitative analysis of the impact of each sector and total output.Third,this paper constructs a multilevel government New Keynesian E-DSGE model,which includes the negative impact of environmental pollution on the utility of representative households,the positive externality of government expenditure other than environmental governance on output,fiscal revenue decentralization and fiscal expenditure decentralization.The dual preference of the local government to pursue economic growth and environmental governance is introduced into the objective function of the local government.In this paper,we explore how the central government influences the behavior of local governments and the motives behind the preference of local governments’ fiscal expenditures for expenditures other than environmental governance and the macroeconomic effects of environmental policies under the background of fiscal decentralization system.