The Mechanism And Empirical Test Of Education Expenditure Under The Fiscal Decentralization System

Since the reforming and opening up in 1978 and tax system reform in 1994, China has formed a decentralization situation; at the same time, it qualifies and strengthens the leading position of local governments of their perusing for maximiz-ing the local benefit. To reach the goal of maximizing the local benefit, each city’s government begins fierce match and competition. This competition has its two sides, on one hand, the stress of competition can compel local governments to focus on economic growth actively, makes government to improve infrastructure, and build a strong base for the economic growth; on the other hand, looking through the fruitful increasing of local economic growth, people find the growth of education expenditure is far behind. Thus there is a big gap for the supplying of public service, which can be represented by education expenditure. And the lack of public service is not conducive to improving the people’s live hood.This paper firstly makes a descriptive analysis of education expenditure and fis-cal decentralization’s present status in China from both the volume and the structure view, and then it describes the mechanism of how fiscal decentralization acts on edu-cation expenditure. Secondly, through building the utility function of government ex-penditure under the system of decentralization and centralization, the paper proves the conclusion that under the same situation, decentralization is not conducive to the in-crease of education expenditure. Last but not least, the paper use panel data of 312 cities (excluding the lost and unreasonable data, totally 1872 data), introduces control variables and politic dummy variables to research how the decentralization competi-tion influences on Chinese local government’s education expenditure.This empirical research exams the following hypothesis:1. The decreasing of the percentage of local government’s education expenditure is because that, under the function of both fiscal decentralization and political centralization, the local govern-ment invests more fiscal resource to projects like infrastructure, which is conducive to attract more business and investment chances. And this squeeze the government’s education expense.2. The different fiscal condition among different regions makes the gap of education expenditure between more developed regions and developing regions.3. The policy of resurging a country by science and technology as well as talents doesn’t bring any substantial improvement to local’s education expenditure, while the reform of Central Organization Department’s performance evaluation crite-ria does paly a positive role in local government’s education expenditure significantly.