Empirical Analysis On The Equalization Effect Of Fiscal Transfer Payment

Since the time of reform and opening, China's national county economy has been contributing greatly to the development of our national economy. By the end of 2009, the national county population makes up 71.3% of the total population; the GDP of the national county consists of 49.2% of the country's total GDP as well as its financial revenue accounts for about 1/4 of the country's financial revenue. However, with the rapid development of the county economy, the economic gap between different counties is becoming increasingly wide, which has already become an obstacle to the further development of our economy and society. As the basic theories of public as well as regional economics propose, only by means of governmental intervention can the problem of regional economic gap be effectively regulated. Thus, fiscal transfer payment system is one of the important methods for the government to reduce regional inequality. Principally aiming at promoting coordinated regional development by means of regulating the inequality of financial resources and narrowing the economic gap between the counties, the fiscal transfer payment system is one of the most important means of effectively adjusting the regional gap. Chinese scholars have done a lot of researches on the improvement and equalization of China's financial transfer payment system, especially on the central and provincial fiscal transfer payment system, however, little has been done on the equalized effect of the county fiscal transfer payment. How to understand the internal connection between the county fiscal transfer payment and County economic development theoretically, which indicators should be used to measure the equalized effect of county-level government transfer payments, what is the effectiveness of equalization of county fiscal transfers, what are the system flaws of county fiscal transfers?Based on statistics of the 91 counties of Shandong province from the year 1994 to the year 2006, this paper selects deviation coefficient as index and carries out a detailed analysis over the influence of fiscal transfer payment on the inequality of county financial resources per capita and the narrowing the county economic gap. Then it comes to the conclusion that the county fiscal transfer payment of Shandong doesn't have the effect of equalizing financial resources per capita or narrowing the county economic gap. After making an empirical test to the inequality effect by using the panel-data random effect model, the paper finally puts forward some suggestions of perfecting the fiscal transfer payment system, which has important practical and theoretical significance for the further study on the financial equalization of the grass-roots government and the mechanism of direct provincial governance over counties.This paper is divided into four parts:Part One makes a brief introduction of the background and significance of the research, the definition of the basic concepts, overview of relevant literature, structure of this paper and its research methods as well as its innovations and shortcomings.Part Two shows the fiscal and economic gap of county economy from both intra-provincial and interprovincial aspects. Based on this, it analyzes the causes of county economic gap and the current arrangement of county fiscal transfer payments system, as well as points out the systematic flaw in the county fiscal transfer payment on limiting the unequal development of county economy.Part Three performs an empirical analysis on the equalization effect of fiscal transfer payment of Shandong. By using deviation coefficient of county fiscal transfer payment, this paper measures the effect of transfer payment on equalizing financial resources of county governments, and also compares the economic gaps between counties of different levels of development. The paper then takes an empirical test to the inequality effect of fiscal transfer payment. As a result, the paper proposes that although the county fiscal transfer payment of Shandong takes no effect of equalizing financial resources per capita, this inequality effect has been decreasing.Part Four puts forward a series of policy recommendations for improving our transfer payment system as well as advancing the coordinated economic development of counties. The recommendations are as follows:i)Integreting various fiscal transfer payments. ii)Setting up an effective incentive and supervisory mechanism for the distribution of fiscal transfer payment, iii)Simplifying govermental strata, iv)Furthering the standardization of the distribution method of transfer payment, v)Furthering the legal consruction of fiscal transfer payment, vi)Exploring an transfer payment system in an intertwining pattern.The paper presents two points of innovation. Firstly, Based on statistics of the 91 counties of Shandong, the paper carries out analysis on the equalization of county fiscal transfers by selecting deviation coefficient as index and using the panel-data random effect model, which has important practical and theoretical significance for the further study on the financial equalization of the grass-roots government and the mechanism of direct provincial governance over counties. Secondly, This paper discuss the economic gap between counties from the perspective of the equalization of financial equalization,which contributes to developing an insight into further exploring the role of the grass-roots government in narrowing the economic gap between counties.