A Study On Fiscal Autonomy And Fiscal Expenditure Efficiency Under The Fiscal Decentralization In China

Financial decentralization plays an important role in Chinese-style reform. After ceaselessly trails, local government at present holds the dominant position of driving the regional economic growth and supporting the supply of public goods, thus, pushing forward the economic development.Based on the inter-provincial panel data from 1995 to 2013, this paper studies the financial decentralization’s effect on the efficiency of the public expenditure. After accounting the index of 29 provinces’ expenditure efficiency using DEA method, this paper also adopts panel-fixed-effect model to examine how province-level financial autonomy impact the efficiency of the public expenditure. We find that, first of all, a significant difference exists among the fiscal expenditure efficiency of different provincial government from 1995 to 2013. More Specifically, the efficiency of the eastern provinces topped the others; that of the less developed western provinces ranked the second; the central provinces the lowest. Secondly, the efficiency of fiscal spending by all local governments has shown a clear upward trend since 2005. Third, fiscal decentralization has enhanced financial autonomy of local government and significantly improved the efficiency of fiscal expenditure, which is the core conclusion of this paper. Finally, we proved the negative correlation between population density and efficiency of local fiscal expenditure as well as the positive correlation between GDP per capita and fiscal expenditure efficiency.Evidences and analysis in this article indicate that fiscal decentralization in China serves as the force to drive the local governments to improve the efficiency of public expenditure and public service. This is because of two reasons. Firstly, high efficiency of fiscal expenditure will enhance the relationship between local government and central government, giving the local officials better rating; secondly, high efficiency of fiscal expenditure will improve the local investment environment, thus accelerating the economic growth and broadening the tax base. Such unique competition mechanism impels the local government to improve the fiscal expenditure efficiency. Meanwhile, comparing with the central government, the local governments have advantages of leading the local economic growth and obtaining beneficial information.