Research On The Effect Of Transfer Payments On China’s Economic Disparity Among Regions

China’s national economy has always maintained a steady and fast growth during the period of thirty-five years of the reform and opening-up. But at the same time, the economical gap between the regionals has aroused the public attention. Eastern coastal cities has been developing rapidly, on the contrary, economic development of western further inlands is relatively backward.The transfer payments system, through the redistribution of wealth, as a common means of dealing with intergovernmental fiscal relations by market economy country plays an important role on balancing the development of regional economies. On the basis of present research, transfer payments can contribute to balancing the financial gap between provinces, equalizing basic public services, improving the level of economic foundation in less developed areas, finally narrowing the gap of economic development between regions.Since tax sharing reform in1994, the transfer payments system has been playing a part in macro-control. This paper is aim to study whether transfer payments system can obviously narrow the gap of economic development between regions, and correlation between each sub project and gap of economic development.In theoretical research, based on two theories, utility maximization theory and principal-agent theory, it states the correlation between transfer payments and economic growth. It concludes that:(1) The local governments can maximize their utility by taking advantage of general transfer payments and then harmonious economic growth can come true.(2) The local governments can maximize their utility in providing the public goods by using tax rebates, but it may expand the economic gap between regions.(3)The local governments cannot maximize their utility in providing the public goods by using special transfer payments, and special transfer payments policy depends on central government’s macro-control, thus the correlation between special transfer payments and narrowing the gap of economic development between regions is uncertain.In the empirical analysis, firstly it has researched the total transfer payments’effect on different regions’economic growth. Based on the different impact on eastern, central and western part, it concludes that:transfer payments can advance economic growth, but it has different results in different regions. The transfer payments have the greatest effect on western region, on the contrary, they have the least effect on eastern region, so it shows that transfer payment have obvious convergence effect on economic growth in different regions. Secondly, it studies the correlation between each sub project and gap of economic development. It concludes that to some extent general transfer payments can narrow the economic gap; on the contrary, tax rebates may expand the economic gap whose negative effect is stronger than general transfer payments’positive effect; special transfer payments make no difference on convergence effect.Finally, based on above research results, on the principle of information’s complexity, regional externality and incentive compatibility, taking current transfer payments system’s shortcomings into consideration, policy suggestions are made which includes that:(1) Scientifically divide the affairs and state power of the governments;(2) define the transfer payments policy targets;(3) optimize the structure of the transfer payments system;(4) gradually put forward horizontal transfer payment system.