Province-Managing-County Reform and Public Education Spending: A Quasi-Natural Experiment of Fiscal Decentralization in China
33 Pages Posted: 30 Sep 2011
Date Written: May 1, 2011
Abstract
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.
Keywords: Fiscal decentralization, education spending
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