Fiscal Decentralization In China Research Articles

Effect of fiscal decentralization on pollution reduction: Firm-level evidence from China

This study aims to investigate whether fiscal decentralization can reduce the pollution emissions intensity of firms. Little is known about how fiscal decentralization affects firm emissions. Based on a quasi-natural experiment of fiscal decentralization in China, that is, the province-managing-county reform, we use firm-level data from 1998 to 2016, and find that the reform can reduce pollution emissions intensity of firms by alleviating the fiscal stress experienced by county governments and intensifying competition between local governments. However, the mechanism is affected by the county-level economic development and migration barriers. The emissions reduction effect of reform is more pronounced in developed counties, and reducing migration barriers can amplify the effect of reform. In addition, we also reveal that the incumbent firms in reformed counties increase their efforts to reduce pollution, whereas the new entrants improve their clean production.

The land finance and eco-product value nexus: Evidence from fiscal decentralization in China.

This study aimed to shed new light on the land finance and eco-product value nexus from the perspective of fiscal decentralization, using data collected from 276 Chinese prefectures between 2005 and 2020. We employed a two-way fixed effects model to explore land finance, fiscal decentralization, and the eco-product value nexus. Our findings revealed that land finance has a noticeable disincentive influence on eco-product value. The impact of land finance on the ecological value of wetlands is much higher than on that of other land types. Additionally, fiscal expenditure decentralization plays a negative regulatory role between land finance and eco-product value. This effect is further strengthened with an increase in the fiscal decentralization level. Our findings suggest that standardizing local government land-granting behavior and making land finance more ecologically friendly through policy implementation will effectively contribute to the sustainable development of China.

Discuss the Feasibility of Fiscal Decentralization in China

In the form of a literature review, this essay will discuss the definition of fiscal decentralization, analyzes the formation and root causes of "Chinese fiscal decentralization" in conjunction with the practice of contemporary China's fiscal system reform, and describes the rationality and specificity of fiscal decentralization in China. Furthermore, this research illustrates that fiscal decentralization in China has a favorable influence on market reform and the economy of local governments in terms of infrastructure and education. At the same time, the article emphasizes that, while modern China practices decentralized financial system reform, that is, Chinese style financial decentralization, Financial Decentralization under the political centralization system has shaped the characteristics of simultaneous increase of local financial autonomy and central financial control.

Measuring the Efficiency of Fiscal Policies for Environmental Pollution Control and the Spatial Effect of Fiscal Decentralization in China.

This paper uses both fiscal expenditure policy and fiscal revenue policy as input indicators and selects environmental pollution control results reflecting different forms and sources of pollution as output indicators. The efficiency of fiscal policies for environmental pollution control (EFPE) of 30 provincial-level administrative divisions in China from 2007 to 2017 is measured by adopting the data envelopment analysis (DEA) method. Then, the spatial effect of fiscal decentralization on EFPE is empirically analyzed by using the spatial lag model (SLM). The results show that EFPE values in China have been greatly improved overall since 2014. The change in technical efficiency (TE) is caused mainly by the change in pure technical efficiency (PTE). EFPE values have regional heterogeneity and convergence. The eastern region has clearly higher EFPE values than other regions. The growth rate of the low efficient region is greater than that of the high efficient region. Fiscal expenditure decentralization has a direct negative effect and spatial spillover effect on EFPE values, while fiscal revenue decentralization has a non-significant effect. Based on these results, this paper proposes the following policy implications: increasing the level of fiscal expenditure of environmental pollution control and improving the central transfer payment system for environmental protection; reforming the government performance assessment system and innovating the conditions of government expenditure on environmental pollution control; and promoting horizontal fiscal cooperation in cross-regional environmental governance.

Fiscal Decentralization, Pollution and China’s Tourism Revenue

This paper focuses on the role of local governments in the development of tourism in China by examining 30 Chinese provinces from 2000 to 2018. The results of empirical research show that fiscal decentralization in China provides local governments with incentives for the development of high pollution industries and of large state-owned enterprises, which do not help the sustainable development of tourism. In addition, there is an “inverted U-shaped” relationship between pollution level and tourism development. Although the growth of China’s tourism industry is pollution-based currently, tourism revenue is considered to decline once a threshold is reached. The competition from local governments for foreign investment is conducive to the improvement of environmental quality and increase in tourism revenue. Based on this, we have proposed a series of sustainable tourism development measures.

Environmental Regulation, Innovation and Corporate Performance: New Insights on the Porter Hypothesis from the Perspective of Fiscal Decentralization in China

The Porter hypothesis holds that appropriate environmental regulation creates a win-win situation for the simultaneous, coordinated development of the environment and the economy in a certain locale. To open the black box of the Porter hypothesis in the Chinese context, this paper considers panel data of Chinese listed companies during the 2007–2016 period using fixed effects and panel threshold models. The results indicate that the Porter hypothesis has not yet been achieved in China. An inappropriate level of fiscal decentralization, accompanied by a high degree of information asymmetry between the central government and local governments, as well as an imperfect official performance evaluation system, a deficient environmental supervision system, and an inadequate innovation milieu are the main factors that have led to the failure of the Porter hypothesis in China. This paper puts forth several suggestions for the relevant government to address this issue.

From Western Knowledge to a National Textbook: The Evolution of Li Quanshi’s Socio-economic Views

The article analyzes the scholarly legacy of Li Quanshi as part of the history of intellectual interactions between China and the West in the Republican Period. Having been educated in the United States, in the early 1920s Li Quanshi used Western economic theories to develop a model of administrative and fiscal decentralization in China. He denounced “the communism of revenue” between different levels of government in China, pointed to the failure of a despotic centralized bureaucracy, and called to transfer financial authority to the level of provincial assemblies. Later, Li Quanshi’s views evolved from liberalism to the support of government intervention in the economy. Numerous publications by Li Quanshi impacted the process of the formation of Chinese economics in the Republican Period. He proposed to produce a “national textbook” in economics that took into account the Chinese realities. Li Quanshi set the goal of moving from copying and rendering foreign books to creating China’s own internationally competitive academic writings. The scholar relied upon the division of economics, widely accepted in the West, into production, distribution, exchange, and consumption, but its application to traditional Chinese material generated new results. In the first history of Chinese economic thought written in the Chinese language Li Quanshi interpreted and structured traditional heritage using Western concepts. His determination to introduce Chinese characteristics into economic research has stimulated increased attention to the issues of consumption and the role of the state in the economy. It is concluded that Li Quanshi’s ideas of the 1920s and 1930s have regained relevance in the context of the current official policy of support to “social sciences with Chinese characteristics”.

The impact of fiscal decentralization on urban agglomeration: Evidence from China

ABSTRACTIn the literature on urban studies, the size distribution of cities has been attributed to a random growth process where transportation externalities, congestion costs, and capital formation all play a crucial role. However, the classic economics models do not fully capture the impact of political institutions, particularly fiscal decentralization, on urban size distribution and fail to explain the political economy of urban agglomeration. As a major transitional economy, China’s economic decentralization, in conjunction with political control, portends a more complex environment for urban agglomeration and offers a new ground to analyze its institutional roots and policy implications. This study employs a panel data analysis of Chinese provinces between 1994 and 2015 and finds a pattern where more decentralized regions (provinces) are associated with stronger dominance of large cities for the whole study period. However, the period between 1994 and 2003 displays a different pattern wherein fiscal decentralization is negatively associated with urban agglomeration. Such phenomena can be attributed to the heated competition among local governments and the absorption of resources by dominant cities under the framework of fiscal decentralization in China, particularly in the recent years. More effective coordination is called upon to mitigate the unintended outcome of fiscal decentralization without proper control in shaping urban hierarchy in China and the findings provide lessons for other developing countries.

The Impact of Fiscal Decentralization on Urban Agglomeration: Evidence from China

In the literature on urban studies, the size distribution of cities has been attributed to a random growth process where transportation externalities, congestion costs, and capital formation all play a crucial role. However, the classic economics models do not fully capture the impact of political institutions, particularly fiscal decentralization, on urban size distribution and fail to explain the political economy of urban agglomeration. As a major transitional economy, China’s economic decentralization, in conjunction with political control, portends a more complex environment for urban agglomeration and offers a new ground to analyze its institutional roots and policy implications. This study employs a panel data analysis of Chinese provinces between 1994 and 2015 and finds a pattern where more decentralized regions (provinces) are associated with stronger dominance of large cities for the whole study period. However, the period between 1994 and 2003 displays a different pattern wherein fiscal decentralization is negatively associated with urban agglomeration. Such phenomena can be attributed to the heated competition among local governments and the absorption of resources by dominant cities under the framework of fiscal decentralization in China, particularly in the recent years. More effective coordination is called upon to mitigate the unintended outcome of fiscal decentralization without proper control in shaping urban hierarchy in China and the findings provide lessons for other developing countries.

Competition Model and the Change of Local Governments’ Behavior—and Governance of China’s Local Government Debt

“Promotion tournament model” is used to explain the Chinese economic miracle. The key of the promotion tournament model is competition for economic growth which brings economic growth together with some societal problems. Competition for economic growth influences local governments’ behavior and is one of the reasons for the rapid rising of local debts. The article proposes a new competition model—competition for inhabitants’ satisfaction. It is a better choice under the system of political centralization with fiscal decentralization in China. It gives inhabitants the right to supervise the government officials while the central government has the power of appointment. Competition for inhabitants’ satisfaction changes the local governments’ investment and finance behaviors, which is meaningful to improve China’s local government debt governance.

Fiscal Decentralization, Satisfaction with Social Services, and Inequality Under the Hukou System

It is generally agreed that decentralized decision-making is conducive to the efficient allocation of resources, but detrimental to the equitable redistribution of income. This paper is intended to investigate the effect of fiscal decentralization on the delivery of three social services in the Chinese context. Using the data from a nationally representative survey, we find that fiscal decentralization in China, in both expenditure and revenue measures, significantly improves individuals’ satisfaction with social services for the sick, for the elderly, and for the poor. However, in contrast to urban local residents, rural dwellers and unregistered city migrants under the household registration (hukou) system benefit substantially less from the decentralized delivery of social services. These findings are robust to alternative model specifications. Our evidence from China not only sheds new light on the debate over the impact of fiscal decentralization on income redistribution, but also contributes to understanding the role of institutions in determining subjective well-being and its unequal distribution among people.

Fiscal reform, decentralization and poverty alleviation in the context of China's 12th Five-Year Plan

China is said to be one of the world's most economically decentralized countries. While the claim that economic as well as fiscal decentralization had much to do with the success of China's reforms is controversial and it has been argued that China's approach to administrative decentralization might over time threaten the success of the reform process, the highly remarkable extent of fiscal decentralization could have the potential to aid the effort at poverty alleviation, especially in the context of the ethno-regional dimension of the country's poverty problem, and reduce the extent of social stratification and enhance stability. This paper analyses the various issues related to fiscal reform and fiscal decentralization in China in the context of the country's 12th Five-Year Plan and explores the Plan's implications for poverty alleviation and the overcoming of stratification.

Fiscal Reform and Public Education Spending: A Quasi-natural Experiment of Fiscal Decentralization in China

Since the 1990s, China has pushed forward the province-managing-county (PMC) reform in some provinces as an experiment of fiscal decentralization. The reform provides a good opportunity to examine the impact of fiscal decentralization on fiscal behaviors of local governments in China. Using a data set of 108 counties in Henan Province during 1999–2008, we employ a difference-in-differences approach to investigate how the PMC reform affects local public education spending. The results show that counties given additional fiscal autonomy tend to spend a lower share of their annual expenditures on public education than other counties do. The findings suggest that fiscal decentralization does not necessarily make local governments more responsive to long-term benefits for local residents.

The Evolution of Fiscal Decentralization in China and India: A Comparative Study of Design and Performance

In this article, we compare and contrast the design and performance of China and India’s intergovernmental fiscal systems. We find that there are remarkable similarities in the design and performance of China and India’s intergovernmental fiscal systems. More specifically, both countries have highly decentralized expenditures assignments and highly centralized revenue assignments. As a result, sub-national governments in both countries must rely on fiscal transfers to finance their assigned functions. Finally, there is considerable off the books and hidden borrowing by sub-national governments in both countries. We also find that there are considerable and growing disparities in the rate of expenditure decentralization among sub-national governments within each country. Lack fiscal discipline and growing fiscal disparities among sub-national governments create risks to future economic growth and to social cohesion, absent policy reforms to address these issues.

Province-Managing-County Reform and Public Education Spending: A Quasi-Natural Experiment of Fiscal Decentralization in China

Since the 1990s, China has pushed forward the province-managing-county (PMC) reform in some provinces as an experiment of fiscal decentralization. The reform provides a good opportunity to examine the impact of fiscal decentralization on fiscal behaviors of local governments in China. Using a dataset of 108 counties in Henan Province during 1999-2008, we use a difference-in-differences approach to investigate how the PMC reform affects local public education spending. The results show that counties given additional fiscal autonomy tend to spend a lower share of their annual expenditures on public education than other counties do. The findings suggest that fiscal decentralization makes local governments more responsive to their performance incentives but not necessarily to the long-term benefits of local residents.

Fiscal Decentralization in China and India: Competitive, Cooperative or Market Preserving Federalism?

This paper provides a comparative assessment of fiscal decentralization in China and India, including the standard components of expenditure and revenue assignments and institutions for intergovernmental transfers, as well as the nature of sub-national authorities over general economic activity. in particular, the case of China, where town and village enterprises have been very active, is contrasted with that of India, where local governments remain circumscribed in their authority, despite decentralizing reforms. the implications of differences in decentralization for fiscal outcomes and economic growth are discussed. the characterization of each country in terms of concepts of federalism, i.e., competitive, cooperative and market preserving federalism, is discussed, in attempting to abstract from the two cases to more general lessons for fiscal decentralization.

Fiscal Decentralization in China and India: Competitive, Cooperative or Market Preserving Federalism?

This paper provides a comparative assessment of fiscal decentralization in China and India, including the standard components of expenditure and revenue assignments and institutions for intergovernmental transfers, as well as the nature of subnational authorities over general economic activity. In particular, the case of China, where town and village enterprises have been very active, is contrasted with that of India, where local governments remain circumscribed in their authority, despite decentralizing reforms. The implications of differences in decentralization for fiscal outcomes and economic growth are discussed. The characterization of each country in terms of concepts of federalism, i.e., competitive, cooperative and market preserving federalism, is discussed, in attempting to abstract from the two cases to more general lessons for fiscal decentralization.

The tradeoff between growth and equity in decentralization policy: China's experience

This paper investigates the potential tradeoff between economic growth and regional equity in the design of fiscal decentralization policy in the context of China's experience. We develop a theoretical model of fiscal decentralization, where overall national economic growth and equity in the regional distribution of fiscal resources are the two objectives pursued by the central government. The model is tested using panel data for 1985–98. We find that fiscal decentralization in China has led to economic growth as well as to significant increases in regional inequality.

Fiscal decentralization in China and India: A comparative perspective

The paper analyses trends in fiscal decentralization in the two largest countries of the world — China and India. Both countries are in transition from a planned to a market system. The paper identifies the emerging challenges in achieving fiscal decentralization in the two countries. The challenges arise firstly from the transition to the market economy and secondly from the replacement of the old command and control systems with institutions developed to administer market-based policies and instruments. The paper argues that the approach to meet the emerging challenges has to be holistic and should deal with the sub-national budgeting system underpinning central fiscal control and not just the various components of the sub-national systems. The overall approach should ideally encompass all levels of government.

Fiscal decentralization, revenue and expenditure assignments, and growth in China

Theory suggests that a close match between revenue and expenditure assignments at sub-national levels benefits allocative efficiency, and hence economic growth. That is, a convergence of revenue and expenditure assignments at sub-national levels of government should, according to the theory, be positively associated with a higher growth rate. In the case of China, this paper shows, divergence, rather than convergence, in revenue and expenditures at the sub-national level of government is associated with higher rates of growth. A panel dataset for 30 provinces in China is used to examine the relationship between fiscal decentralization and economic growth over two phases of fiscal decentralization in China: (1) 1979–1993 under the fiscal contract system, and (2) 1994–1999 under the tax assignment system. The seeming contradiction between the theory and evidence in the China case is reconciled by taking into account the institutional arrangements that prevailed during the two phases of fiscal decentralization, in particular the inconsistency between the assumptions of the theory of fiscal decentralization and the institutional reality of China.