Analyzing The Effect Of Intergovernmental Transfer On The Supply Of Local Public Goods

Since the reform and opening, China has sustained rapid growth and People’s demand for education, health care, social security and so on is also growing, But the growing rate of public goods and public services has lagged far behind the pace of the development of economic. The Tax Reform in1994has lead to these problems. After the1994’Tax Reform, The central government controls the most of the financial income. The central government has not assumed the responsibility of providing local public goods, while the central government has controlled the financial income. To make up the local government’s financial deficit, the central government has continued to increase the fiscal transfer payments and adjusted the structure of the fiscal transfer payments. Looking from the design and operation of the financial system below provincial level, the financial income is intent and the fiscal expenditure is in fragmented. In this case, this paper chooses the financial system as research system and the study of the effect of fiscal transfer on the supply of local public goods is necessary. The effect of fiscal transfer on the supply of local public goods is in two ways. On one hand, the local government would make the fiscal transfer payments as the substitute for financial income after it received fiscal transfer payments and this will lower the fiscal effort. On the other hand, the flypaper effect existed or not.This paper uses the data of17cities in Shandong Province from1999to2011to statistically analyze the fiscal transfer payments and the expenditure of local public goods of17cities of Shandong Province. Also the article uses regression model to empirically analyze the influence of the fiscal transfer payments on fiscal effort and the supply of local public goods. The study finds that the fiscal transfer makes the fiscal effort bigger. The incentive coefficient of tax return is big and the incentive coefficient of the general transfer payments and the special transfer payments has is small. The fiscal transfer has inspired the spending of the local public goods which means the flypaper effect exists. The per capita fiscal transfer has significantly stimulated the per capita expenditure of education, health care and society security.This paper is divided into six chapters: Chapter1make a brief introduction of the background and significance of the research, the definitions of the basic concepts, structure of this paper, the innovations and the shortages of the paper.Chapter2includes the theoretical basis and literature review. It includes the effect of fiscal transfer on fiscal effort, the effect of general transfer, the effect of special transfer and the review of fiscal effort and flypaper effect.Chapter3studies the fiscal transfer system and the providing situation of local public goods of Shandong province. It includes the analysis of the economic and financial situations of17cities, the fiscal transfer system of Shandong Province and the local public goods providing situation.Chapter4uses17cities’data from1999to2011to empirically analyze the effect of fiscal transfer on fiscal effort and uses regression model to analyze the tax return, general transfer, special transfer’s influence on fiscal effort.Chapter5is about the analysis of flypaper effect. It uses17cities’data from1999to2011to analyze the influence of fiscal transfer on education spending, health care spending and social security spending.Chapter6is about conclusions and suggestions. It summarizes the conclusions of chapter4,5and gives suggestions based on the conclusions.The paper has2points of innovations. First, it comprehensively studies the fiscal transfer’s influence on the providing of local public goods through2ways:fiscal effort and flypaper effect. Fiscal effort reflects the impact of fiscal transfer on local financial income which was used to finance the public goods. The flypaper effect reflects the influence of fiscal transfer on the spending of local public goods. Second, the paper would analyze the influence of fiscal transfer on the supply situations of local public goods from local government while the previous literatures analyze it from provincial government.