Public Finance, Public Goods Provision, and Government Responsiveness: Evidence from Rural China
47 Pages Posted: 1 Apr 2019
Date Written: March 8, 2019
Governmental fiscal transfers can be important tools for redistributing resources and enhancing public services in areas with limited local resources. At the same time, politicians can use fiscal transfers to build patronage networks, weaken opposition candidates, or engage in rent-seeking. An understudied feature of governmental transfers is that local governments can become fiscally dependent on higher-level government. This dependence might lead local officials to favor the priorities of higher-level government while compromising responsiveness to local residents. Using panel data from Chinese villages and a two-way fixed effects design, I demonstrate that when villages become more dependent on fiscal transfers from townships, they provide fewer public goods to villagers and more private goods to village elites. The results also suggest that fiscal transfers will not undermine local representation when electoral competition for village leadership positions exists or consent of the villagers is required for the use of funding.
Keywords: China, Public Finance, Fiscal Transfers, Public Goods, Government Responsiveness
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