Study On The Risk Factors Of The Division Of Dministrative Power Between The Central Government And Local Governments

About the decentralization of authorities between central and local governments, the main theory of economics is the theory of fiscal federalism. Its purpose is to improve the efficiency of the supply of public goods, and put forward a wide-ranging implication of the principle of division of authorities. The theory of fiscal federalism think that national public goods, that is. to provide public goods or services for the entire country, such as macro-economics stability, national defense, foreign affairs and currency, its responsibilities belongs to the central government; responsibilities of local government is to provide the local public goods, which is limited to the scope of consumption in local, for example tap water, urban heating and garbage disposal and other public infrastructure. And if some local public goods and services have the external effect and economic effect, the responsibilities should be allocated to the government that is as low as possible of the government to internalize externalities. In the paper, the principle of such a division of powers between central and local is referred to as the "principle of efficiency"However, we find the division of power has significantly deviated from the principle of efficiency in china. The paper argues that the main reason of deviating from the principle of efficiency is the needs to reduce the political risk of central government by itself. This political risk is classified into two categories:the first category is a social risk. Social risk means the part of the administrative affairs of the government that prone to conflict with the public provokes the public discontent with the government and protest. So they affect social stability and government leaders’political future. Such social risks also exist in the process of the government to provide public goods (such as food safety supervision). Accordingly, the paper argues that a greater "social risk" of public goods, regardless of their national public goods or local public goods, the central government is more likely to require local governments to undertake the responsibility of supply. This is the higher degree of decentralization in those public goods. The second category is the fiscal risk. Because the local governments is the agent of central government in china, so the ultimately result of their behaviors is responsible of central government. Therefore the investment risks in providing public goods (such as the construction of subway) from local governments are also finally taken by central government. Once local governments occurs the fiscal crisis, the central government will be forced to rescue local governments by adopting to increase loans or write-off debt. Its results will likely lead to inflation, and a threat to social stability’and political stability. In order to avoid the occurrence of this adverse situation, the central government takes the centralized control on the supply of public goods that involve large-scale investment and higher investment risk. It implies that the supply responsibility of local public goods still belongs to local governments, but decision-making power rests in the hands of the government, this situation is called central examination and approval system of local public project.Through case study and the establishment of a theoretical model, paper demonstrates why decentralization deviates from the principle of efficiency when these two types of political risk exist. In addition, we also analyze the incentive arrangements between local officials and central government, when local officials take the different tasks. We find that the local government in China is mainly responsible for the two tasks:the first one is to provide local public goods that will promote local economic development and meet the regional needs of the people:the second is in charge of high social nsk of public goods. The incentive problem that the central government needs to consider is how to make local officials with enthusiasm to complete these two tasks at the same time. This paper argues that the arrangement of the administrative accountability and official comeback after accountability is the incentive mechanism used by the central government. On the one hand, when the event of mass incidents or event with public strongly dissatisfied occur, it reconciles the social risk and preserves the social stability through accountability of officials:the other hand, the comeback of officials provides a kind of insurant mechanism. This design enhances the level of official’s efforts, and benefits the prosperity of the local economy.Finally, the paper also discusses some possible progress and main problems in the future.