Institutional Incentive For Local Government Investment

Under the background of centralization and economic decentralization in China, The incentive system from different levels, which involves not only the longitudinal relationship between the central and local governments, but also the horizontal relationship between the local and the local government. Local government investment is in the horizontal and vertical "cross" game.In Chinese, the incentive system of local government investment mainly from two aspects, one is the official promotion incentive, the other is the competition of local government. On the one hand, The Promotion Tournament of officials is based on economic performance, step by step, which inevitably led to blind investment behavior of local government. On the other hand, faced with the central government subsidies, taxation, local governments seek resources and benefits, excessive competition and enlargement, with ignoring cooperation, investment distortion.Official promotion incentives, local government competition incentives affect the local government investment behavior. They not only promote the economic development, but also bring investment distortions, such as duplication of investment, investment structure distortion, investment division and so on, this situation can not be reversed short time. Under incomplete information, between the central government and local government, the local government and residents, there is a principal-agent model, so there might be no economic efficiency.From the point of view of empirical analysis, this paper mainly explores the significance of the two incentives to local government investment behavior, as well as the incentives of investment distortions mainly from what kind of incentives. Local officials dominant the local behavior to a certain extent. Therefore, there is the intermediary role of competition and incentive to the promotion of officials and local investment. Specifically, the thesis chooses the core explanatory variables, namely, the promotion of official pressure index and the index of local government competition, local government investment as the explanatory variable.In common panel analysis, using 2003-2012 Chinese 27 provinces data by fixed effect method, found two kinds of incentive are significant. For investment, the investment of adjacent provinces may exist mutual influence and promotion, spatial effect. Therefore, the article has carried on the spatial panel test, concluded that significantly at 10%, there was a spatial economic effect.China’s economic development has entered a new stage, the urgent need for industrial restructuring and investment quality improvement, and thus a reasonable investment in the economic development is essential. To enhance the quality of investment is hard, the feasible policies are people-oriented officials promotion incentives, legal, risk, environmental component of multi-level constraint mechanism, local protectionism trend reversed, regional integration, state-owned enterprise management redefined, and so on.