Fiscal Decentralization, Public Spending, and Economic Growth in China
World Bank - Development Research Group (DECRG); Peking University
World Bank Policy Research Working Paper No. 1608
Fifteen years of efforts to promote fiscal decentralization in China have failed to promote economic growth in China's provinces. This finding is surprising in the light of arguments that fiscal decentralization usually promotes provincial or local economic growth.
Zhang and Zou use data on China to demonstrate how the allocation of fiscal revenue and expenditures between central and local governments has affected economic growth since reforms that began in the last 1970s. They find a higher degree of fiscal decentralization associated with lower provincial economic growth over the past 15 years in China. This implies that fiscal reforms begun in China in the early 1980s have probably failed to promote the country's economic growth. This result is consistently significant and robust in their empirical examinations. It is also surprising, in the light of the argument that fiscal decentralization usually contributes positively to provincial or local economic growth.
This paper - a product of the Public Economics Division, Policy Research Department - is part of a larger effort in the department to study fiscal decentralization and economic growth. The study was funded by the Bank's Research Support Budget under the research project Fiscal Decentralization and Economic Growth (RPO 680-02).
Number of Pages in PDF File: 52
Date posted: April 20, 2016