Research Of Fiscal Decentralization,Economic Growth And The Optimal Degree Of Decentralization

Since 1978, the economy of China has experienced thirty years’rapid development, while the financial system has undergone major changes and adjustments. Fiscal decentralization reform is an important part of financial reform during this period, therefore fiscal decentralization reform inevitably affect the economy. At the same time, the research of fiscal decentralization is an important field in the research of economic. Domestic and foreign scholars have conducted a lot of research on the fiscal decentralization. But a lot of controversy still remains about the impact of fiscal decentralization to the economic growth, particularly for the developing countries such as China, different national conditions, level of development and stage of development having obvious particularity.Based on the above considerations, this paper studies the impact of fiscal decentralization to the economic growth and the optimal degree of decentralization, further analyzing the suitability of the fiscal decentralization and the divergences in different regions. Firstly, this article carries a comprehensive description and conclusion about the theory of fiscal decentralization and the impact of fiscal decentralization to the economic growth. At the same time, this paper reviewed the fiscal decentralization reforms since the founding of our country. Secondly, in theory, this article analyzes the path of the fiscal decentralization’s impact to economic growth:First, through the rational division of financial powers and responsibility between central government and local governments. As a result, public resources can be effectively configured, and fiscal decentralization will give the local governments excitations, which maybe produce an impact on economic growth; Second, fiscal decentralization affect vendors and consumers’expectations and behavior, and then influence output and consumption to affect economic growth. On this basis, this paper studies the provincial panel data and analyzes the impact of fiscal decentralization to economic growth and the optimal degree of decentralization. Discovering that fiscal decentralization has a positive effect on the economy and there is an inverted U-shaped relationship and also an ontimal degree of decentralization. The analysis revealed that currently our country belongs to the over decentralization, while there are some divergences in ditterent regions degree of fiscal decentralization,. Finally, according to the above analysis, this article provides some simple advices for our country’s fiscal decentralization reform.