An Empirical Research On The Factors Influencing Local Government Size Under Fiscal Decentralization Of Chinese Style

Government size always catches the interest of public and scholars. Adolf Wagner, a German economist of 19 century, once predicted that, with the economy growth, the government size will keep growing and the growing rate will be higher than the one of economy's. This prediction was almost demonstrated by the truth of those developed countries behavior after the World War II. Yet the trend of China's total government size got a special U-type curve, as the local government shows a perfect contradiction with Wagner's prediction.With a comparison analysis of the current size of China's local government, this paper is trying to find out the most important factors which influenced the size under the background of fiscal decentralization of Chinese style. It was consist of 5 chapters. In chapter 1, we found that most classical theory about government size could not be a good explanation about the changing trend of China's local government size. In chapter 2, with literatures review, we defined "government size" in this paper, and analyzed how to quantifying it. Chapter 3 is the main part of this paper, we discussed several factors and the mechanism through which the government can be influenced on theory, from the sight of supply and demand. Those factors, included reform, bureaucracy system, fiscal decentralization and the government competition from the supply angle, and economy growth, openness of a district, population, minorities etc. from the demand angle. Chapter 4 is the empirical research part with evidence from Province-Level panel data of China, year 1997 to 2007. Chapter 5 is the last part of this paper, included the findings, some suggestion, and a deeper thought as well. With the help of empirical research, this paper concluded the following items as its conclusion: first, the research of Chinese local government size only means something under the background of the fiscal decentralization; second, those factors, which can influence the Chinese local government size, should never be single ones. It was just lots of factors influenced the government size in different ways; third, in our current system, the bureaucracy and the fiscal decentralization will improve the expand of local government size with the population impairing it; fourth, government competition and institution transformation also can be quantified as indexes in our regression model which was used to testify the influenced factors. The result shows the weaker the market economy is, the big the government size is, while the government competition doesn't show a very strong influence of the government size.