Local Fiscal Decentralization And Economic Growth

This paper studies the relationship between local fiscal system and economic growth. There are four levels regional government in china, namely the province, city, county and township. Local fiscal decentralization is an important part of the system of fiscal decentralization. Study of local fiscal system and economic growth relationship, is essential for improving the implementation of the local fiscal decentralization, to promote local economic growth, reduce regional imbalances, this research has practical significance.The methods of this paper for research, associating normative analysis and empirical analysis. First, we summarized all kinds of theoretical about how fiscal decentralization influenced economic growth. Pointed out that the role of fiscal decentralization in two ways from economic growth, the one way is influence resource allocation and the other way is influence the institutional environment about production activities of private sector, and we also proposed local self-financing capacity is very important for economic growth.Based on normative analysis to study the current status quo of China’s local fiscal decentralization and problems. At present, China’s local fiscal decentralization system is not perfect, property rights and powers by unreasonable led to local governments, especially county and township grass-roots levels of government financial difficulties. China’s local fiscal system and economic growth relationship may appear a departure from the conclusions of the theoretical analysis.On the basis of normative analysis and research on the status quo of China’s local government fiscal decentralization, we select Jiangsu Province for example, analysis of the relationship between local fiscal decentralization and economic growth in empirical. Based on theoretical analysis, we construct three indicators to measure the level of fiscal decentralization, fiscal expenditure decentralization, fiscal revenue decentralization and self-financing capacity to measure the level of fiscal decentralization. The rate of economic growth as the explanatory variables, the explanatory variable includes the level of fiscal decentralization, the growth rate of investment in fixed assets and labor force growth rate. Panel data model has been used for research. There are two-step regression, the first step, Separate analysis of the explanatory variables and the explanatory variables, the second step to join the social fixed asset investment growth rate, the growth rate of labor control variable regression analysis. The time range is from1995to2011. The results of this paper is local fiscal decentralization does not promote economic growth, in city and county. Current fiscal decentralization system makes the weak performance of the grass-roots levels of govemment in promoting local economic growth.