Special Transfer Payments Research Articles

Transfer payments and carbon reduction in China: The effect of the national comprehensive demonstration city of energy saving and emission reduction fiscal policy

To address climate change and achieve high-quality economic development, China began implementing the Comprehensive Demonstration City of Energy Saving and Emission Reduction Fiscal Policy (ESERFP) in 2011. This policy relies on special transfer payments to increase the integration of various energy conservation and emission reduction fiscal policies, thereby accelerating institutional and mechanism innovation, actively promoting economic structure adjustment and development mode transformation, and achieving energy conservation and emission reduction goals in various regions. This study uses a multi-period difference-in-difference (DID) model to estimate the ESERFP's CO2 emission reduction effect and paths. The findings demonstrate the following: (1) The ESERFP has lessened the CO2 emission intensity of the demonstration city and effectively played a role in reducing CO2 emissions. (2) Mechanism analysis demonstrates that the ESERFP has significantly improved the green travel level of residents in pilot cities and can also reduce cities' total energy consumption. Therefore, the ESERFP can effectively suppress CO2 emissions by improving transportation systems and optimizing energy consumption structures. (3) Further analysis shows that the ESERFP can reduce the CO2 emission scale of the demonstration cities and effectively promote the increase of actual per capita gross domestic product in pilot cities, bringing economic dividends and thus achieving a “win-win” situation of environmental protection and economic growth. (4) Heterogeneity analysis demonstrates that the CO2 emission reduction effect is more significant in non-old industrial-based cities, non-resource-based cities, and urban agglomerations. This study not only evaluates the CO2 reduction effect of the demonstration city but also provides reference significance for the improvement of subsequent environmental regulations. In addition, clarifying the implementation effect of the ESERFP can help alleviate ecological and environmental problems in the process of urban economic development in China and achieve the sustainable development goal of green transformation.

Urban-rural income gap and urban crime rate

This article takes various prefecture-level cities in China as the research subject and empirically tests the relationship between the urban-rural income gap and the urban crime rate in Chinese urban areas. The research results show that the greater the urban-rural income gap, the more likely it is to lead to an increase in the urban crime rate. Further heterogeneity analysis results show that the impact of the urban-rural income gap on the urban crime rate is more evident in areas with low levels of marketization and low levels of government special transfer payments.

Do Green Transfer Payments Contribute to Carbon Emission Reduction?

Reducing carbon emissions is the top priority for mankind for dealing with climate issues. The Chinese government selected 30 demonstration cities in three batches and provided these cities green special transfer payment funds for three years to build green projects and achieve energy saving and emission reduction (ESER). This policy provides a great opportunity to study whether green transfer payments play an important role in carbon reduction, which has received little attention before. Additionally, the central government set a series of fiscal performance assessment indicators, including the ESER effect, the completion of green projects, and long-term mechanism construction in order to evaluate the effectiveness of the use of funds. This article creatively conducts theoretical analysis from the perspective of performance assessment, takes ESER special transfer payment policy as a quasi-natural experiment, and uses the panel data of 284 cities in China from 2007 to 2017 and 2019 to verify the impact of the green transfer payment on carbon emissions in and after demonstration periods and its mechanisms with the staggered DID method and the new DID Multiplegt (DIDM) model. This article found that green transfer payments could reduce carbon emissions in demonstration cities, and this effect still existed even after policy withdrawal. Mechanism analysis further corroborates that the carbon-reduction effect of green transfer payments could be achieved by increasing the urban green area and improving energy efficiency. Heterogeneity analysis reveals that green transfers have a greater carbon reduction effect on demonstration cities, which receives more green transfer payment funds and has a higher level of financial development. Recommendations related to setting proper performance assessment ESER indicators include improving the management of ESER transfer funds and maximizing the cost–benefit ratio of fiscal funds, which are proposed according to the research conclusions.

Tax pressure, farmland management, and agricultural carbon abatement: Empirical evidence from tax-and-fees reform in rural China

Agriculture is the second largest source of carbon emissions in the world. To achieve the strategic goals of “carbon peaking” and “carbon neutrality”, how to effectively control agricultural carbon emissions has become a focus of the Chinese government. As China’s most critical agricultural policy in the early 21st century, assessing the impact of rural tax-and-fees reform (RTFR) on agricultural carbon emissions has vital theoretical and practical implications. Based on panel data of 31 Chinese provinces from 2000 to 2019, this paper constructs a continuous difference-in-differences (CDID) model to identify the effects of RTFR on agricultural carbon emissions, and further tests the mechanisms and heterogeneity of the reform to achieve agricultural carbon emission reduction. The results demonstrate that the reform can effectively reduce the agricultural carbon intensity and improve agricultural carbon efficiency, with the effects of −6.35% and 6.14%, respectively. Moreover, the dynamic effect test shows that the impact of RTFR on agricultural carbon intensity and carbon efficiency is persistent. Furthermore, the mechanism analysis indicates that RTFR achieves the improvement of agricultural operation efficiency and the reduction of agricultural carbon emissions through the expansion of land operation area, the increase of productive investment in agriculture, and the special transfer payment from the central government. However, the impact of RTFR on local government revenue is not conducive to realizing the reform’s carbon reduction effect. The heterogeneity analysis illustrates that the reform policy effects differ in natural climatic conditions, topographical conditions, and crop cultivation structure. The RTFR mostly has a significant negative impact on the carbon emissions generated from material inputs and agricultural production. Therefore, to address the climate change crisis and improve the environmental efficiency of agricultural production, it is necessary to both reduce peasants’ tax burden and implement institutional construction efforts, to further promote the transformation of agricultural production to a low-carbon model.

Fiscal transfer under tax and infrastructure competition

ABSTRACT Interjurisdictional fiscal transfer is generally divided into special transfer payments and general transfer payments. We analyse the welfare implications of these two types of transfer within the framework of tax and infrastructure competition for capital among jurisdictions. The results show that when the decline rate of marginal productivity of capital is low, special transfer payments generate a higher level of social welfare than the general transfer regime if the fiscal transfer is sufficiently large. However, when the decline rate of marginal productivity is high, general transfer payments always dominate the special transfer regime in terms of welfare.

Does Fiscal Expenditure Promote the Upgrading of Regional Manufacturing Industry? Empirical Test Based on the Dual Perspective of Infrastructure and Basic Public Services

The Fifth Plenary Session of the 19th CPC Central Committee set the tone that China’s manufacturing industry should upgrade to advanced, intelligent and high quality. In the traditional theory of industrial structure upgrading, fiscal expenditure is not the main influencing factor. In the new pattern of “dual circulation” development of Chinese economy, the important role of government in economic development should not be ignored in the study of the high-end upgrading of manufacturing industry. Using the panel data of 28 provinces in China from 2008 to 2016, this paper deeply studies the economic effect of the most important expenditure on basic public services and infrastructure on the upgrading of manufacturing industry, as well as the regional heterogeneity and the nonlinear characteristics of the technological progress stage. It is found that the economic effect of general budget expenditure and basic public service expenditure on the high-end upgrading of manufacturing structure shows the characteristics of strong heterogeneity and marginal decline, which mainly comes from the promotion effect of the two types of fiscal expenditure in the eastern region and the hindrance effect in the central and western regions. Especially in the five western provinces where industrialization is slow and heavily dependent on transfer payments, infrastructure expenditure and basic public service expenditure show negative economic effects around 2010, but this does not completely mean the failure of the policy effect of local governments. Poverty reduction and poverty alleviation in such underdeveloped areas often rely more on the development of labor-intensive manufacturing industry. With the improvement of the level of innovative technological progress, the role of basic public service expenditure in promoting the upgrading of manufacturing industry will be gradually strengthened. This paper holds that under the new pattern, the eastern provinces should increase investment in information infrastructure, promote the reform of affordable housing, and release the restrictions on both the household registration of high-skilled talents and the school district of children’s basic education. The central provinces should give further play to the role of the market in allocating resources, and focus on improving the quality of public services such as education and medical treatment to the eastern region, so as to better undertake the transfer of high-skilled talents and manufacturing industry in the eastern region. For special provinces with slow industrialization and mainly relying on central transfer payments, we can appropriately increase the proportion of special transfer payments, strengthen the guidance of subsidies and financial policies on social capital, and stimulate the vitality of market players. Under the background of “tax cut and fee reduction”, this paper provides empirical evidence for the improvement of government fiscal expenditure efficiency, the regional policy design of the upgrading of manufacturing industry, and the optimization of fiscal expenditure structure.

Research on the Poverty Reduction Effect of Fiscal Transfer Payment: An Empirical Study Based on National Poverty-stricken Counties

Since the reform of tax-sharing system in 1994, the central government has begun to implement large-scale fiscal transfer payment to the poor areas in central and western China, but no consensus has been reached on the effect of fiscal transfer payment on poverty reduction. However, in previous studies, public transfer payment refers to the urban public relief system, agricultural subsidies, rural old-age security, urban and rural subsistence security, etc., not including other types of inter-governmental fiscal transfer payment; the data used are mainly from micro-survey data, and focus on the income level of poor population, household income, labor supply and so on, not involving the macroeconomic indicators of poor areas, and lacking inspection on the ability of “blood transfusion” and “blood-making” of fiscal transfer payment.In this paper, the intergovernmental fiscal transfer payment is selected as the core indicator, and it is no longer limited to the public transfer payment for families. Then, we construct a multi-dimensional index system reflecting the poverty reduction effect of poverty-stricken areas, and analyze the effect of fiscal transfer payment on poverty-stricken areas from a macro perspective. Firstly, the impact of fiscal transfer payment on absolute indicators such as poor population, poverty incidence rate, per capita GDP, rural per capita electricity consumption and total mechanical power per household in poverty-stricken areas is more significant. The poverty reduction effect of fiscal transfer payment is better, but there is also the situation that GDP grows rapidly in some regions, but the per capita financial income “does not rise but falls”, that is, the efforts of fiscal revenue are relatively low. Secondly, the effect of fiscal transfer payment on poverty reduction is not ideal or even significantly negative for the ratio of per capita GDP, per capita fiscal income and per capita electricity consumption. This shows that although fiscal transfer payment improves the absolute production and living standards of poor areas, compared with the national average level, it does not increase significantly, but decreases. Solving the problem of relative poverty is still the focus of all future work. Thirdly, in the study of classified transfer payment, the effects of tax return, general transfer payment and special transfer payment are obvious, and the effect of special transfer payment is better than that of general transfer payment.The academic value of this paper is mainly reflected in three aspects: Firstly, it is conducive to improving the current fiscal transfer payment system. Under the background of enhancing the general transfer payment and reducing the special transfer payment, we need to focus on the characteristics of poor areas, do not take “one-size-fits-all” reform measures. Secondly, it is beneficial to enhance the poverty reduction effect of fiscal transfer payment in poor areas and bring into play the use efficiency of fiscal transfer payment. Thirdly, it is conducive to objectively evaluating the poverty reduction effect of fiscal transfer payment. Through the construction of multi-dimensional index system, this paper can objectively reflect the economic development status of poverty-stricken areas and the regional gap with other regions, and provide certain reference for building a long-term mechanism to solve relative poverty in the “post-poverty era” in 2020.

Explore emission reduction strategy and evolutionary mechanism under central environmental protection inspection system for multi-agent based on evolutionary game theory

In response to the deteriorating environmental pollution, China has formulated a series of environmental regulation policies. However, political centralization and economic decentralization have subjected the local governments (LGs) to the dual constraints of environmental protection and economic development during the implementation of environmental regulation, which has resulted in the failure of conventional environmental regulation. To this end, the central government (CG) has established a central environmental protection inspection system (CEPIS). However, the existing literature has insufficiently studied the role and policy tools of the CG for inspecting the LGs and the polluting enterprises (PEs) to implement environmental regulation, and lacked systematic analysis of the strategic interactions and policy effects caused by CEPIS. Evolutionary game theory (EGT) provides a powerful tool with which to unpack the interactive strategies of Multi-Agent in China. By exploring the evolution of different participants’ behavior and their evolutionary stable strategy (ESS), EGT enables a robust, quantitative analysis of this three-party game. Simultaneously, some numerical examples serve to verify the theoretical results and support four key insights. First, the selection of environmental strategies manifests in a dynamic process of constant adjustment and optimization. Second, the whole evolutionary game system can converge on an ideal state under certain conditions. Third, increasing the investments in the special transfer payments of environmental protection, expanding the scale of emissions trading market, and improving the emission reduction benefits can motivate the PEs to reduce their emissions and the LGs to perform their duties. Fourth, in some scenarios, simply increasing the political penalties for the LGs fails to motivate the LGs to perform their duties. This research can provide the evolutionary mechanism and broaden our understanding of relationship between environmental regulation and emission reduction strategies. Related implications are finally proposed, which can offer valuable guidance on reforming the environmental regulation and improve market outcomes in China.

Does Intergovernmental Transfer Payment Stimulate the Local Special Expenditure? A Theoretical Mechanism and Its Empirical Test Based on Documents and Provincial and Municipal Data

This paper divides both the provincial specific transfer payment and the general public budget expenditure into four categories: science & education, social security & medical care, economic construction, and agriculture, which is based on the documents of China’s specific transfer payment. Then it uses the provincial and municipal panel data to verify the mechanism of the specific transfer payment through the comprehensive trade-off of income effect, matching effect and crowding effect. The study finds that the specific transfer payments of science & education and social security & medical care significantly reduce the corresponding science & education expenditure and social security & medical care expenditure. While the specific transfer payments of economic construction and agriculture significantly increase the corresponding economic construction expenditure and agricultural expenditure. The specific transfer payment of economic construction also significantly stimulates the other three types of the local expenditure. There are different operational logics in the specific transfer payments of science & education and agriculture. When the crowding effect is greater than the income effect, the special transfer payment of science & education will stimulate the expenditure on economic construction while reducing the local expenditure on science and education. When the income effect is greater than the crowding effect, the specific transfer payment of agriculture will be driven by the economic construction expenditure and eventually increase the local agricultural expenditure.

Education Equity in Special Education Transfer Payments to Low-income Groups

Under the “Chinese-style” decentralization system, transfer payments have not only become the major source of funding for most local governments to provide public services, but also become important policy tools for higher levels of government. Education transfer payment is an important institutional arrangement to narrow the educational investment gap and promote education equity. Therefore, the establishment of a standardized special transfer payment system for compulsory education is the guarantee for promoting education fairness for low-income groups. The Gini coefficient of education not only reflects the role of education in promoting economic growth and social development, but also an important indicator of the fairness of education. The Gini coefficient of education in various provinces in China shows that there is a clear gap between our country and the developed countries in education. There is also a serious gap between high-income and low-income groups. This paper uses the non-recursive structural equation method as the background to reform the rural compulsory education funding guarantee mechanism. It combines the Gini coefficient of education and the data of 423 counties in five provinces in central China in 2017. The results show that the embedding of prize excellence mechanism in the system of compulsory education transfer payment can inspire the government to shift resources toward basic education. In this way, a fair and efficient special transfer payment system can be established to ensure the fairness of education for low-income groups.

The Governance Model of Project Institutions and the Expansion of Local Government Debt

With the completion of tax-sharing system reform in 1994, the financial capacity and governance capacity of the central government have been rapidly improved. In order to encourage the local government to actively achieve the goal of promoting economical growth and maintaining people’s livelihood”, after 2002, the central government gradually came to allocate the transfer payment in the form of projects” downward. The special transfer payment allocated by the project application increased rapidly from 37.5 billion yuan in 1995 to 1894.1 billion yuan in 2014, with an average annual growth rate of 22.93%. The huge amount of the special transfer payment has strengthened the governing effect of the central government in relying on the top-down system and gradually formed a unique governance model of project institutions”. Project institutions establish the hierarchical governance mechanism between the central and local governments, which not only fully arouses the enthusiasm of local governments to carry out the campaign of project competition and develop regional economy, but also increases the debt financing needs of local governments. Actually, project institutions form a financial capital chain with the project as the carrier, the central special transfer as the guide, and the local supporting funds, bank loans and other funds extensively involved. By constructing the dynamic game model which reflects the relationship between central and local governments, we analyze the impact of project institutions on financing decisions of local governments. Then based on the special subsidy and local debt data of 278 cities, we test the expansion effect on the debt of project institutions and the mechanism. The research shows that project institutions significantly promote the expansion of local debts. The effect, on the one hand, comes from the increase of debt financing of public investment demands; on the other hand, comes from soft budget constraints of the special subsidy, which may induce local governments to carry on moral risk behaviors on debt financing, and the effect is more pronounced in poorer regions. The policy implications of this paper include the following: first, a transparent and scientific project application mechanism should be constructed; second, the central government should clearly define the inter-governmental authority and expenditure responsibility as soon as possible; third, the central government needs to tighten budgetary constraints on local governments, and makes its attitudes clear at local debts and reduce the expectations for aids. The potential contributions of this paper lie in two aspects: First, previous literature is mainly based on the perspective of central-local relations, which studies the causes of local government debts, generally emphasizes the influence of the decentralization governance model characterized by lumpism”. However, it ignores the possible debt expansion effect of project institutions, which is more characterized by centralism. Second, existing empirical literature mostly uses the data of provincial government debts or chengtou” debts to calculate the total amount of local government debts, but the main body of Chinese government debt issuance is the local government below the provincial level, the main source of debt funds is bank deposits, and the direction of investment of debts is mainly municipal infrastructure construction projects. Therefore, we select the sum of various types of long and short term debts of urban financing platforms and fixed assets investment of municipal public facilities construction from bank loans as the agent variable of local government debts, so as to make the empirical results more reliable.

A Gap of Chinese Education Finance and Transfer Payments Modes Based on Education Equalization

The majority of education expenditures are paid by local governments in China. On the one hand, owing to the performance evaluation system taking GDP as a standard, the education efforts of local governments are at a lower level; on the other hand, the differences in natural endowments and economic development among regions lead to the greater gap of education development level among regions. Firstly, this paper uses the 2012 data to estimate China's provincial education fiscal gap on the basis of the determination of the proportion of education resources in regions. The results show that, the gap of education finance concentrates in Central China and West China, but our present education transfer payments funds cannot make up for the gap of education finance in these regions. On the basis of this situation, it designs a set of conditional grant modes of education special transfer payments, and combines the constraints of local government fiscal decision-making behavior and the system of education special transfer payments together, in order to guarantee the education resources and make up for the local gap of education finance.

Can Poverty be Alleviated in China?

The 2000s witnessed the third poverty alleviation wave in China. Compared with its predecessors, the third wave distinguished itself by new interventions and redefined standards for the National Poor Counties. This paper evaluates the effectiveness of the new program using a data set consisting of 1,411 of China's western and central counties from 2000 to 2010. It combines the propensity score matching method with the difference‐in‐differences approach, which helps to avoid selection bias and track the policy impact on variables of interest at each time point. It is found that the non‐western local governments tended to manipulate data on income and output growth to maintain the special transfer payments disbursed exclusively to the National Poor Counties. It is also shown that the program failed to improve the infrastructure and sanitary conditions in general.

Dynamics of central–local relations in China’s social welfare system

Central–local relations have been always regarded as one of fundamental institutional arrangements that determine rapid economic development in China. However, the dynamics of central–local relations in China’s social welfare system have not been paid much attention. I argue, in this article, that China has moved from decentralization to recentralization in enacting its social welfare system, to address increasingly more serious social unrest stemming from loosened control over public welfare provision on the part of the central government during the decentralizing market reform era. The process of recentralization is embodied in three major policy instruments: (1) reintroducing the binding targets as a tool by which they could control local governments once again; (2) scaling up the proportion of special transfer payments and initiated central-guided regional pilot projects; and (3) strengthening line management and encouraging local administrative power to concentrate in provincial governments. I empirically illustrate the recent recentralization processes in several social policy fields such as public health, pension insurance, and basic education.

The Project System: A New Form of State Governance

作为新双轨制的增量部分, 项目制旨在通过国家财政的专项转移支付等项目手 段,突破以单位制为代表的原有科层体制的束缚,遏制市场体制所造成的分化效应, 加大民生工程和公共服务的有效投入. 以项目制为核心确立的新的国家治理体制,形 成了中央与地方政府之间的分级治理机制,并对基层社会产生了诸多意外后果。项目 制所引起的基层集体债务, 部门利益化以及体制的系统风险,对于可持续的社会发展 将产生重要影响. As the incremental component of the new dual track system, the project system aims to use special transfer payments from state finances and other strategies to break the shackles of the existing bureaucratic order, as represented by the work unit system. This approach seeks to curb the polarization arising from marketization and increase investment in people’s livelihood and public services. The new project-centered system of governance has encouraged the formation of hierarchical central-local governance mechanisms, leading to a number of unforeseen outcomes for grassroots society. Collective debt at the grassroots level, departmental interests and the systemic risk brought about by the project system will have important implications for the sustainable development of society.