Abstract
At present, China is in a critical period of transition from labor-intensive industries to capital- and technology-intensive industries. Accordingly, the increasing labor force mobility among Chinese cities has promoted competition over production factors among regions, having a significant impact on local governments’ fiscal expenditure structure. A theoretical analysis shows that the competition of livelihood public good expenditures is playing an increasingly important role in the factor flow competition. Different labor forces’ demand for different public goods and local governments’ demand for different labor forces affect the structural preference of local government fiscal expenditures. Based on panel data on Chinese prefecture-level cities in 2010–2016, this paper empirically tests the impact of different labor mobilities on the structure of local government fiscal expenditures, finding that current decision making on labor mobility is increasingly sensitive to the supply of livelihood public goods, and strengthening labor mobility has reversed the expenditure bias historically caused by the government’s simple capital competition. After dividing the mobile labor force based on whether the labor is settled in the current year, the two labor force types’ demand for different livelihood public goods was found to be different. To attract different labor inflows, local governments should promote an increase in relevant livelihood public good expenditures, showing a strategic fiscal expenditure structural bias. Specifically, with increasing new added general labor mobility, local goverments will increase the proportion of fiscal expenditures on education and medical care, combined with the increase of newly added registered labor mobility, which will correspondingly increase the proportion of environmental protection expenditures.
Highlights
Chinese-style decentralization is characterized by a top-down political management system and extensive economic decentralization [1,2]
According to the estimation strategy mentioned above, the regression model is used to verify the impact of different types of labor mobility on the proportion of different livelihood public good expenditures, to provide evidence for propositions 1 and 2
After dealing with the problems of endogeneity by instrumental variable (IV) estimation in Table 3 and controlling for specific variables in Table 4, we can confirm the existence of the mechanism of the impact of labor mobility on the local government fiscal expenditure structure
Summary
Chinese-style decentralization is characterized by a top-down political management system and extensive economic decentralization [1,2]. Local governments’ competition for both FDI and domestic floating capital leads to the bias of their expenditure structure, which is clearly strategic [5,6] Another part of the literature focuses on the effect of yardstick competition on the local government expenditure structure (The “yardstick competition” here refers to the local governments competing on the supply of public goods, trying to provide more and better public goods than the competitors.) Zhou [7,8] and Li and Zhou [9] pointed out that the combination of top-down political centralization and fiscal decentralization has enabled regional officials to compete extensively in the economic field to achieve political advancement, which, in turn, has led to a lack of relative supply of livelihood public goods.
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