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A Study Of The Economic Behavior Of Local Government In China’s Transition

Posted on:2012-01-26Degree:MasterType:Thesis
Country:ChinaCandidate:Z P WangFull Text:PDF
GTID:2236330368977190Subject:Political economy
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China has achieved remarkable accomplishments since the reform and open up 30 years ago. Wealth accumulated in virtue of the progressive adoption of market principle as well as political system innovation combined with resource advantages. Local governments, with strengthened power from the fiscal decentralization in the 1980s and hence initiatives to boost economy, have played an indispensable role in promoting economic transition and development. That all supported China’s years high speed development.The policy targets of local governments differ slightly from those of the central government due to their drive in meeting higher level government’s measurements and seeking political competitiveness as well as political promotion. When regulating and developing regional economy, local governments vie with contemporaries and the central government for economic resources which inevitably leads to lowered efficiency in allocating social resources and welfare loss.To guide economy growth therefore, will require studies and scientific guidance on local governments’ economic behavior which will help to understand China’s economy transition plus economic development. By studying local governments’ economic behavior, in depth analysis on its mechanism and influence could be rolled out to subjectively evaluate their contributions to the transition and development, clearly point out their contradictoriness during conduction of economic behavior, and in helping generating regulative policies and suggestions on them in a timely manner. Herein local governments’ positive role can be fully played while the negative part can be avoided or eliminated to maintain a smooth as well as speedy economy growth.This essay, based on others’ research results, will analyze behavior of local governments by elaborating on the relationship between local governments as well as the relationship between the central government and local governments. Also the essay will expatiate on reasons of the above-mentioned target divergence between local and central government in economic transition period and will bring forward political proposals for regulating local government economic behavior.Principal-agent Theory and Game Theory methodology are adopted as well Public Choice Theory and Institutional Economics are used as reference to expound local government’s economic behavior in allocating resources and in guiding regional economy development since fiscal decentralization. The essay also focuses on exploring the motives for these behaviors during economic transition period and on analyzing their influences on regional economy as well as the formation of uniform market.Based upon above train of thoughts, the essay falls into 5 chapters.Chapter 1:Introduction. Introducing questions, study objective, reason for selecting this topic, research thinking, essay structure, methodology, as well as the essay’s contributions and shortcomings.Chapter 2:Preliminary analysis on local government economic behaviors: basic concept of government and local government, behavioral evolution of local government, their environment during the transition period and features shown in this environment, and finally the two-sided influence local government has on economic and social development.Chapter 3 places local government into hierarchy for detailed analysis by explaining, with both theory and evidence, and analyzing effects of the gaming on fiscal incomes as well as economic policies between different levels of local governments.Chapter 4 places local government among contemporaries for detailed analysis by explaining, with both theory and evidence, and analyzing effects of tax preferences competition, public goods and service competition, redundant projects, regional protection as well as market segmentation.Chapter 5, based upon the analysis of the other chapters, concludes policy suggestions for regulating local government’s economic behavior.A combination of normative study and empirical study methodology is applied. In normative study, theoretical analysis is used to explain the "what" and "why" of local government economic behavior. In empirical study, effects analysis and strategy research is used to analyze what is "right and wrong" about local government economic behavior and concrete proposals are posed to regulate the behavior.The essay uses western Public Choice Theory as reference and treats local government both as a regional economy delegate as well as an interest group composed of officials. Based upon this, gaming for political promotion among fellow officials is introduced. Theoretical model is applied then to expound local government’s economic behavior, in particular the behavior among contemporaries alike.Shortcomings of the essay:Due to limited theoretical understandings, some analyses are not thorough enough. Also due to limited personal knowledge accumulated, some theoretical models require perfection. Normative analysis could go further in depth. These relate with the features of local government. First of all, the complexity of the behavior itself:Diversified results derived from diversified behaviors from multitude of local governments. For analysis purpose, this essay treats diversities as a simple abstract study subject, hence the analysis may not be comprehensive. Some analytical statistics are difficult to obtain as both technical and non-technical reasons, such as rent-seeking scales of local government officials plus the nontoxic income details.
Keywords/Search Tags:Local government, Economic behavior, Fiscal Decentralization, Principal-agent, Political promotion tournaments
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