The Effect Of Fiscal Transfer On Regional Inequality

Based on the panel data of 86 counties of Gansu Province from 1994 to now, this paper explored the function of fiscal transfer on regional inequality by statistics and econometrics. The main research contents of this paper were about the regional inequality of Gansu Province, the distribution and use of fiscal transfer, the effect of fiscal transfer on regional inequality. The conclusion of this paper enriched the knowledge about China's fiscal transfer policy and offered helpful reference to reduce regional inequality by fiscal transfer.The overall conclusion of this paper was that the Gansu's local policy of fiscal transfer had not reduced but increased the regional inequality in Gansu Province. The main findings of this paper are as follows: there were remarkable regional inequalities not only in economy but also social development and the level of social development had positive correlation with the level of economic development; The main aim in distributing fiscal transfer was maintaining daily operating of local governments and social stabilization, the financial supporting population was the most important factor in distributing fiscal transfers. Due to the positive correlation between the financial supporting population and the level of economic development, the more developed regions gained more fiscal transfers in terms of per capita level. Fiscal transfers impelled production expense increasing more dramatically than serving expense and administration expense; the analysis byβ-coefficient convergence and production function indicated that fiscal transfer promoted local economic growth significantly, consequently, the fiscal transfer enlarged the regional economy disparity due to the more fiscal transfers flowed to the developed regions; More deeply analysis showed that fiscal transfer received in more developed counties had more economic yields than in less developed counties. It was concluded that reducing regional economic disparity by fiscal transfer is not efficient.This paper considered that reducing regional disparity should pay coordinative attention to equity and efficiency. Reducing regional inequality should not interfere in the function of economic mechanism and not impair the economic efficiency. Based on the result of this research, this paper put forward some suggestions as following: when normalizing and perfecting the policy of fiscal transfer, the government should regard reducing regional social inequality as the purpose of fiscal transfer, especially reducing the regional inequality in the aspects of education, sanitation, social security, etc. in addition, the government should transform its function to weaken its economic business and strengthen its social administration and public service.There are two innovative points in this paper. One is a theoretic innovation, namely this paper put forward an analysis framework of public expense affecting regional inequality; another one is a methodological innovation, namely this paper treated the fiscal transfer yearly received by counties as a flow variable and evaluated the deposit amount of fiscal transfer possessed by each county, in this way this paper estimated the long-term effect of fiscal transfer on local economic development.