Political Economy Analysis On The Transformation Of Government 's Public Service Function Under Fiscal Decentralization System

The reform and opening-up policy is promoting the process of market-oriented economy in China and the fiscal decentralization reform has become the objective demand of market economy development. Theoretically, the fiscal decentralization reform should promote the transformation of local government to a service-oriented government by improving people’s livelihood expenditure and enhancing the government’s public service function. However, it is not a conducive way that using the economic growth to measure the evaluation index of regional development and the achievements of local officials. This paper is based on a ’profit—behavior—institution—stimulation’view and establishes a political economics analysis framework on the transformation of the government public service function which under the fiscal decentralization system. It points out the restriction factors and the necessity of that transformation and puts forward one hypothesis that the existing fiscal decentralization system will hinder the transformation of government’s public service function.Therefore, by analyzing provincial data of 29 provinces from 1995 to 2012 in China, this paper demonstrates that the fiscal decentralization indeed hinder the transformation of government functions. To be specific, it explains the local public service function through the people’s livelihood expenditure rate, measures the actual level of fiscal decentralization with five fiscal decentralization indexes, and finally proves that the fiscal decentralization does have negative effect and hysteresis effect on people’s livelihood expenditure by using the two-way fixed effects approach. In conclusion, combining with the results of theoretical analysis and empirical analysis, this paper gives policy suggestions to the transition of the government public service function which under the fiscal decentralization system. These different subjects will be able to compete with each other independently and ultimately choose win-win cooperation to promote this process as well as achieve the goal of building a ’service-oriented government’.