An Empirical Analysis of Fiscal Decentralization on Public Goods Spending

Yongtao Li,Jiguang Zheng

doi:10.4236/tel.2017.73030

Abstract

China has achieved a rapid economy growth for nearly forty years since the reform and opening-up policy in 1978, and the overall living standard of Chinese residents has also improved significantly. In reality, economic transition includes a series of processes, not only related to the market and business, but also involves with the government’s change. The traditional theory of decentralization mainly argues it can make better for subordinate governments to ensure that the public goods they provided match with local residents’ preferences and to promote the efficiency of local public services delivery. This paper essentially uses a year-county dual fixed effects model to test the impact of fiscal decentralization on the spending of public goods at county-level. Our analysis finds fiscal decentralization has a significant positive impact on the spending of residents’ livelihood other than the investment in infrastructure. In particular, the county government prefers the projects closely related to public goods expenditure of local residents to the projects that have a larger spillover effect.

Highlights

It was the reform and opening-up drive that thoroughly transformed China, which achieved rapid economic development in nearly forty years, and it is regarded as a great achievement and creation
Our analysis finds fiscal decentralization has a significant positive impact on the spending of residents’ livelihood other than the investment in infrastructure
The county government prefers the projects closely related to public goods expenditure of local residents to the projects that have a larger spillover effect

Summary

Introduction

It was the reform and opening-up drive that thoroughly transformed China, which achieved rapid economic development in nearly forty years, and it is regarded as a great achievement and creation. By analyzing the prevailing international trends, China realized that peace and development were the two main themes of the modern world. It is more straightforward to explore the impact of decentralization on government functions than to examine its impact on economic growth, and it is more accuracy to analyze the governance effect or the quality of interventions brought by government reform. The supply side reform is an urgent task of China’s current economic adjustment and development, the accurate assessment of the direct effect of government administrative decentralization will help to better assess the quality of government intervention, to provide empirical support for government reform and to offer propellant to current economic reform.

Literature Review

Data Source and Description

Econometric Analysis

Findings

Summary and Conclusions