The Impact Of Fiscal Decentralization On The Supply Of Local Compulsory Education

According to mainstream fiscal decentralization theory, federal fiscal decentralization will improve the level of social welfare. Firstly, the local governments know the needs of the public better than the central government, when they get more fiscal authorities, the pubic goods and service will be well served; Secondly, the free floating population will increase the competition between governments, social walfare will be improved by "voting with one’s hands" and "voting with one’s feet".However, many studies have pointed out that fiscal decentralization decrease the supply of the public goods, because of the externality of the public goods. Local government focus more on their own political and economic interest, the provincial-level government would give priority to arrangement for the limited financial resources to the capital construction investment which help promote the economic growth, thus has occupied the compulsory outlay.This paper analyzes the main causes of the phenomenon:under tournament competition among local government officials, fiscal decentralization on expenditure and decentralization of educational expenditure, local governments tend to invest more in infrastructure but less in public services.We build theoretical models, and do empirical tests based on 1999-2012 provincial panel data in China. The results show that fiscal decentralization does decrease compulsory education provision. And we find the effects worse in primary education in comparison of middle education.