The Research On The Impacts Of Fiscal Decentralization System In China On Regional Economic Growth And Welfare

Since reform began in the late 1970s, fiscal decentralization reform has always been an important aspect of China’s economic transformation and has experienced the similar progress of market reform. During the period of financial reform, China’s economy has experienced 30 years of "golden period" and meanwhile regional development imbalance is also very prominent. It’s is generally believed that there is no simple corresponding relationship between fiscal decentralization and economic growth and there is no simple corresponding relationship between fiscal decentralization and the regional gap by Literature at home and abroad. On the premise of meeting the relevant assumptions and ignoring other factors’effects, the paper can derive that fiscal spending decentralization level is the factor that influences the growth rate of output per capita, so fiscal spending decentralization level is the influence factors of economic development, further concluding that fiscal spending decentralization level is the influence factors of regional economic development. Given the diversity and collaborative of factors in reality that influence the development of regional economy, the paper sets up a CGE model to analyze the influential effects of fiscal decentralization system and related factors on the regional economic development. Firstly, the paper introduces the measure and necessity of fiscal decentralization and gives an overview of reform process and the analysis of regional difference of China’s fiscal decentralization system. And the paper makes a brief introduction fiscal decentralization theory of two generations and theory analysis that the system of fiscal decentralization affects economic development. Secondly, the paper introduces economic analysis based on CGE model from two different aspects. First of all, the paper makes a overview of the introduction and application of CGE model. Then the paper expounds the basic framework of CGE model. At the same time, the paper introduces the behavior of the equation set of subjects such as family, enterprise, government and consistency check of CGE model. Finally, the paper makes policy simulation and studies the fiscal decentralization reform’s impact on regional growth and welfare effect.The main conclusions of the paper are as follows:1. A decrease in the level of fiscal revenue decentralization will lead to a drop in output both in inland and coastal areas. Central government fiscal revenue highly centralizing are against two regional economic growth and from the results of regional coordinated development, its effect also is very limited.2. The increase of local government debt financing will cause a decline in inland production output value and an increase in coastal areas production output value. The main reason is that the decrease of income of inland family resulting form financing for the local government puts an inhibition effect on the consumption of products and services. The local government of coastal areas due to inherent advantages of economy, culture, system can make its corresponding investment bring in more apparent additional income increase effect.3. The increase in both local government spending deducting the consumer spending and income of local government debt financing will reduce total utility of inland areas and increase total utility of coastal areas. The increase of local government spending deducting the consumer spending means essentially the decrease of local government consumption. The decrease of local government spending of two different areas has two aspects’effects on regional total utility:the decrease of local government spending leads to the decrease of regional resident’s income, so the regional total utility decreases. The decrease of local government spending means that transfer payment to regional resident increases, so the regional total utility increases. And the final result depends on which effect is dominant. The economy is more developed and system is more perfect in coastal areas than those in inland areas. Coastal areas have the congenital advantages in debt financing for some related programs, obtaining higher returns than inland areas, which is helpful to improve the total welfare in coastal areas.4. The decline of fiscal revenue decentralization and the increase of local government debt financing income will cause a decline of output in both inland and coastal areas. Given previous independent effect of fiscal revenue decentralization and government debt financing income we can see the effectiveness of multiple factors is not a simple superposition effect of single factor. Coastal areas have the congenital advantages in economic, system, culture and so on, and via debt financing for related project can gain a higher rate of return. However, the central government has enormous power in the fiscal revenue, which makes the asymmetry problems between central government and local government very prominent. The increase of both the ratio of tax revenue owing to the central government to total tax revenue and local government’s income coming from debt financing is not desirable no matter from the Angle of promoting economic development, or from the Angle of promoting the balanced development of regional economy.