Fiscal Decentralization, Government Behavior And Economic Growth

China's economy has gone through sustained and rapid economic development for over 30 years, which indeed creates the wonders of the world, along with the improvement of China's international status. However, economic growth is considered to be more a result of investment, technological progress and the national macro-control. It is not difficult to find policy makers and academics are paying increasing concern to the relationship between fiscal decentralization, local government behavior and economic growth over the past 20 years. Yet, for the relationship in the countries in transition, there are still a lot of controversies. So studying the driving force behind economic growth is very meaningful, especially for China, in terms of those transitional countries.This paper attempts to explain the impact of decentralization on economic growth from the perspective of fiscal decentralization and local government behavior. The article is divided into six chapters. The first part of the first chapter outlines the research background and significance of this paper. For the previous study on fiscal decentralization and economic growth has not reached the same conclusion, since the founding of our country we have carried out a number of financial reforms, our attempt to examine the effects of decentralization helps with implementation of the policy in the breadth and depth. After a review of research on the interaction between fiscal decentralization and economic growth from domestic and foreign scholars.The third part describes the research method used in this paper, the structure of this dissertation writing and deficiencies. The second chapter outlines the four major financial reform processes from a historical point and its impact on economic growth. In summary, in addition to that unified collection and allocation of funds by the state in financial system hinders economic growth, fiscal responsibility system, tax sharing system reform and public finance reforms all contribute to the economic growth. The third and fourth chapters are the key sections of this article. The third chapter analyzes the model, demonstrating from the model that fiscal decentralization affects economic growth as well as the existence of the principal-agent problem taken into consideration, the political process cannot achieve an optimal degree of decentralization. The fourth chapter is a part of empirical analysis. This article uses data from 1978 to 2009 to do empirical analysis on fiscal decentralization's impact on economic growth through income index, expenditure index and financial self-sufficiency rate which are used to measure fiscal decentralization, econometric models with panel data and error term, adopting static panel model and dynamic panel model, lagged variables included to do empirical testing.The results show the effect of fiscal decentralization exists cross-period and inter-regional differences. Static panel analysis shows that, overall, fiscal decentralization has a weak positive effect on economic growth, fiscal decentralization from 1978 to 1993 has more significant effect than tax sharing system reform from 1993 to 2009, which may be attributed to tax reform, the region market segmentation, blind investment, redundant construction and other causes. Western provinces with respect to fiscal decentralization have obvious advantages over the eastern region, followed by the central region, and the eastern region promote the smallest output. From 1994 to 2009, as to the eastern part, the positive effect of decentralization on economic growth weakens, while the positive effects of the western region become strong, which indicates that for large China, the level of regional economic development gap so large a country, in order to narrow the development gap between regions and achieve common prosperity, strategically adopting differentiated policy of decentralization is very desirable. Dynamic panel analysis shows that fiscal decentralization in the eastern region has a more active role in promoting economic growth. This on the one hand may be the results of initial condition, on the other hand the country's preferential policies related. After adding lagged terms, there is a big difference in regression results between the two. The fifth chapter analyzes the different effects on the economy arising from the four different financial systems, accompanied by different government behavior acting on the allocation of resources. The sixth chapter is the summary for the empirical analysis and normative analysis, and proposes a bit of suggestion.