Deconstructing decentralization in China: fiscal incentive versus local autonomy in policy implementation

Abstract

This article examines the congruent and conflicting effects of fiscal decentralization and power devolution—two main types of decentralization in post‐reform China—in order to tackle the insufficient distinction between them in current academic analyses. Derived from the two types of decentralization respectively are fiscal incentive and local autonomy, which influence local states' policy implementation in turnover taxation. By uncovering the unique logic of either factor, this article argues that contrary to what is widely presupposed, local autonomy is not necessarily congruent with fiscal incentive in affecting local compliance with centrally imposed policy rules during policy implementation. When power devolution and fiscal decentralization follow an internally consistent logic of decentralization as a whole by proceeding at the same pace and favoring the same specific locality, they inevitably generate conflicting effects on local states' implementation strategies. Congruent effects arise only if incoherent evolution occurs between the two types of decentralization. This paradox highlights the contradiction inveterate in the dynamics of decentralization. This argument is first developed through theoretical reasoning, and then substantiated by an empirical comparison between Guangzhou and Shanghai during 1984–1988 and 1992–1995.