The Research On Local Government Competition

In spite of a unitary state, China also has the obvious local government competition phenomenon,which becomes a unique research perspective of economic and social problems, under the commoninfluence of the public financial management system of decentralization trend and other factors.The article elaborates and analyzes the phenomenon of local government competition in China fromfive sections.The first chapter,the introduction, which mainly expounds the research background, significance,research methods and main ideas, reviewing and evaluating the theoretical study of local governmentcompetition from domestic and foreign scholars at the same time. In order to realize the local governmentrational competition, this chapter gives policy proposals after analyzing transition of local governmentcompetition, the influence factors, the method and results under the background of fiscal decentralizationby new institutional economics and the game theory on the basis of related literature.The second chapter, the local government competition theory, which further defines the concept oflocal government and local governments competition, and analysis the local government competitiontheory from four research perspective. The perspective of fiscal federalism lays particular stress on thebackground of fiscal decentralization. The perspective of Public choice theory sees the local government as"limited rational economic man". The perspective of new institutional economics theory focuses on therelationship between local government competition and institutional change. The perspective of gametheory, which becomes an effective tool, emphasizes the process of competition behavior choice amonglocal government.The third chapter, the development and influencing factors of local government competition inChina.The transition, from the planned economy to market economy, made the public financialmanagement system tremendous changes and shown different characteristics of local governmentcompetition in different stages since1949. Local government didn’t exist economical competition in thecontext of the planned economic system and financial system of unified revenue and expenditure beforereform and opening. The trend of fiscal decentralization, from Reform and Opening-up to the tax-sharingreform, changed constraints on local government, leading to the competitive behavior of local governments. The tax-sharing reform formed a stable financial relationship between central and local, resulting in moreintense competition between local governments, but its defects have also become an important factor ofirrational competition. The author find that there are four aspects influencing local government competitionin the institutional background of the gradual reform, including fiscal decentralization, market-orientedprocess, structure and size of the supply of public goods from government, as well as the officialperformance assessment mechanism.The fourth chapter, the main means and results of local government competition under theperspective of the game theory. Local government mainly utilizes tax preferences and financial expenditureto compete. It makes clearly that tax competition evolved from moderate to excessive between localgovernments gradually, falling into the outcome of the "Prisoner’s Dilemma" under incomplete informationgame model eventually. Spending competition can easily lead to the occurrence of repeated construction.From the results, benign competition can contribute to the improvement of regional economic performance,otherwise, vicious competition will aggravate local protectionism and redundant construction, hinder theprocess of regional marketization, then reduce economic performance and form vicious cycle.The fifth chapter, the main conclusions and policy recommendations. In order to guide localgovernments standardized and rational competition, we can start from six aspects, including themarketization accelerating, reconstruction of the relationship between local governments, improvement ofthe public financial management system and the official assessment system, transformation of governmentfunctions, etc. Only in this way can it achieve the improvement of regional economic performance andform a virtuous interaction on local government competition.