Does Fiscal Decentralization Improve Local Government Administration Efficiency?

Our government administration efficiency is lower than many governments in the world.Some researches have suggested that our government itself even costs about 20%financial resources.High administration cost,big government institutions have occupied so much financial resources,which should be allocated to provide public goods as well as services.At last,it decreases social welfare.Central government also care much about the booming government administration cost.And it emphasizes in many important meetings that the government administration cost should be reduced and an economizing government should be built.To increase government's administration efficiency,whether the fiscal policy should be centralized or decentralized?On one hand,improving decentralization will reduce inter-government vertical communication cost,encourage horizontal competence and thus improve internal government efficiency;on the other hand,the improvement of fiscal decentralization without proper supervision will create waste in resources and finally reduce government internal efficiency.This paper test the effect of China fiscal decentralization on local government administration efficiency,using China county level panel data from year 1999 to 2006.County government in China is the direct management and execution entity of various policies.And it can be more real and complete from the view of county level government.By using four different decentralization indexes,we study the effect of fiscal decentralization on government efficiency.Our conclusion is that,the fiscal decentralization in China decrease government itself administration efficiency.We find that increase in fiscal decentralization decrease the number of government employees per 10000 RMB fiscal spending,and this kind of relationship is significant and robust.Finally,several group heterogeneity analysis results have also shown that weakness in supervision,control,restrain and information obstruction make the fiscal decentralization restrain effect on the local government internal efficiency even more serious.We recommend that following the decentralization policies,control,supervision and management should be reinforced.