Local Government Fiscal Expenditure Structure Deflection And Its Economic Growth Effect Research

At the back of China’s economic growth miracle exist many unbalanced phenomena relating to public goods supply, such as the lack of providing basic education, social security and public medical treatment etc. The current situation is contradicted to China’s target of "Improving the people’s livelihood and establishing fundamental public services system". This article thinks that the reason of the phenomenon is the deviation of the composition of local government’s public expenditure. Specifically, in the institution background of "Financial decentralization, Chinese style", the behavior of local governments are unreasonable, the local governments are always taking infrastructure construction seriously and neglecting local public goods supply, which means they have not played the role of public goods providers well.In the second part of this article, on the basis of Market Preserving Federalism, Political Tournament and the model of multitask principal-agent in Holmstrom&Milgrom(1991), the author illustrates how the local governments to take unreasonable expenditure behavior under incentives of financial decentralization, political tournament and personal interests. However, it is not easy to correct this type of deviation until the local governments’interests can meet their incentive compatibility constraints, even if the central government turns its preference to the citizens’welfare. In the third part,this article uses the endogenous economic growth models including government expenditure which come from Barro and Hengfu Zou. On the basis of these models,the author discusses the results of the deviation of the composition of public expenditure, especially its impact on economic growth. Then, this article processing evidence-analysis by using of panel data from each provinces in China, the result indicates that the rate of economic public expenditure and non-economic public expenditure has an opposite effect on economic growth, which means that the local governments should adjust the composition of their public expenditure in order to transform their roles as servants, either in view of justice or efficiency.