Analysis Of The Effect The Fiscal Decentralization On The Regional Convergence Of China,S Fiscal Policy

Fiscal decentralization (FD) is currently a world-wide trend. With economic development,a large number of countries trend to transfer more fiscal authorities to local governments. Previous theoretical research shows that,in a sound political and fiscal system,FD can effectively motivate local governments to act for their citizens.However, in reality, because of varies problems in mechanism design, FD does not have the positive effects which are mentioned in theories.take china for example,while tax-sharing reform in1994increased the revenue of central government,it also increased fiscal expenditure burden of local governments, which gave local governments more motivation to economic-development,but also cased regional inequality in fiscal expenditure, which is not conductive to the sustainable development of our economic and society.Although there are a large number of literatures about of China,s fiscal inequality,but only few of them studied the convergence of China,s fiscal inequality. In this literature, based on the provincial data of30provinces of China, the empirical research is doing concerning the convergence of China,s fiscal policy to extend the existing studies.Firstly, the background and the meaning of this paper are illustrated at the beginning of this paper. Then we discuss the cause and mechanisms through which FD may affect the convergence of China,s fiscal expenditure, such as increasing difference of economic growth caused by FD, the transfer system,the division of the responsibility between central and local governments as well as the distortion of actions of local government. Then we built empirical models and do empirical tests based on1994-2010provincial data in China.The result shows there,s no convergence in China,s fiscal expenditure sincere the so called taxing-sharing reform.but when variables,such as FD. GDP per captain and industries structure are controlled,the conditional convergence hypothesis is presented. Then we extend our research to study how FD affect difference of fiscal expenditure in east,middle and west regions,our studies shows that there are difference between the convergence of the east,middle and west regions in China.Finally, we do empirical research to study whether FD have different effects on the convergence of varies fiscal expenditure items,such as the fiscal expenditure in agriculture, education or administration, as well as whether there are difference in varies regions for these fiscal expenditure items.From theoretical analysis and empirical results,we provide policy suggestions to Chian,s fiscal reform.