Fiscal Decentralization, The People's Livelihood Expenditure And Criminal Crime

Although the economic rapid growth has made great achievements in more than thirty years, one of Chinese major challenges to building a harmonious society is increasingly serious crimes. What lead to Chinese rising crime rate and what measures we need to take to reduce it? Since Becker (1968)’s thought that criminals rationally choose crime considering "cost-benefit",many researchers have continued the view and deeply explored the factors of crime from multiple perspectives,such as the income gap, unemployment, legal punishment and deterrence effects and so on. These perspectives provide useful ways for us to understand and prevent the rising crime rate.However, the fact in consistent with the Chinese rising crime rate is that in the process of Chinese political and economic reform, the competition between local governments resulted by fiscal decentralization and promotional incentives caused respectively unreasonable public expenditure structure. The expenditure policy is in favor of GDP target, while ignoring the education, health care, social security and other livelihood projects. That is, the proportion of people’s livelihood expenditure to the total economic output is too low to meet the actual people’s needs effectively. So we conjecture that the Chinese rising criminal rate may be due to the losses of people’s basic rights.Thence the paper attempts to explain this problem from the government’s expenditure on people’s livelihood. At first, we analyze the direct effects of people’s livelihood expenditure on the criminal rate, and the indirect effects of fiscal decentralization on the criminal rate through people’s livelihood expenditure. Two hypotheses based on that are put forward. Then we empirically explore the significant impact of people’s livelihood expenditure on the criminal rate by means of dynamic panel data method (System GMM), using Chinese provincial panel data from1995-2008. After effectively overcoming simultaneous endogenous between variables and conducting a series of robustness tests, we conclude that increased spending on people’s livelihood will inhibit the rising criminal rate. While with a higher level of fiscal decentralization, the effect of inhibition will be undermined gradually. At the same time, the conclusion also shows that the local government’s public security expenditure does not play the desired deterrent role in reducing the rising criminal rate. Fatherly, the advice is that during the new period of building a harmonious society, Chinese government must adjust public expenditure structure, increase fiscal spending on people’s livelihood and transform criminal control strategy from the simple maintenance of stability towards focusing on people’s livelihood in order to control the escalating criminal rate.