The Impact Of Fiscal Decentralization And Financial Development On Household Consumption In China

In an international environment of increasing instability and uncertainty,China has proposed to build a new development pattern of "double cycle" in response to shrinking consumption in the international market and insufficient domestic demand in the domestic market,highlighting the important role of consumption in economic growth.To promote the domestic cycle,the Chinese government has implemented a series of fiscal policies aimed at promoting consumption,especially residential consumption,by expanding government spending,thereby promoting high-quality development of the Chinese economy.Under the fiscal decentralization system,local governments transfer the cost of fiscal expenditures to their own regions through the central government’s transfer payments,increasing expenditures on people’s livelihood and positively influencing their consumption.However,there are also "political tournaments" among local governments,resulting in fiscal expenditures flowing to industries that contribute more to GDP and squeezing expenditures on people’s livelihood,which in turn has a negative impact on public consumption.Therefore,the specific impact of fiscal decentralization on public consumption needs further study.Meanwhile,the booming financial sector has brought more choices to residents.Consumer credit,digital inclusive finance,and the development of the insurance industry have changed residents’ consumption constraints and risk management,affecting the depth and breadth of residents’ consumption.Therefore,the impact of financial development on residents’ consumption needs to be clarified.Effectively leveraging the institutional advantages of China’s fiscal decentralization system and deepening the favorable factors of financial development on residential consumption is key to China’s high-quality development.This paper analyzes the mechanism of fiscal decentralization and financial development on residents’ consumption and constructs a theoretical model through an endogenous growth model.In addition,the coupling effect of fiscal decentralization and financial development on public consumption is examined.The findings show that fiscal decentralization has an inverted U-shaped effect on residential consumption,increasing first and then decreasing.Financial development has a facilitating effect on residential consumption,but the effect shows a marginal decreasing phenomenon as financial development increases.There is regional heterogeneity in the effects of fiscal decentralization and financial development on residential consumption.In the eastern region,the effect of financial influence on consumption is most obvious,while in the central region,fiscal decentralization and financial development have an effect on consumption.In the western region,the effect of fiscal decentralization on consumption is the most obvious,while the effect of finance on consumption is not obvious.Fiscal decentralization and financial development show heterogeneity for residents’ industries with different consumption levels.Fiscal decentralization has an obvious role in promoting residents’ consumption levels when the residents’ consumption quantile is below 0.5.When the residents’ consumption quantile is at 0.75 and 0.9,the regression coefficient of fiscal decentralization on residents’ consumption level decreases to a negative value,and the absolute coefficient of the effect gradually decreases,while financial development has a significant promoting effect on residents’ consumption.There is a lack of effective synergy between the fiscal decentralization system and financial development in China.Finally,policy recommendations are proposed based on the research findings.