Research On The Comprehensive Effect Of Chinese-style Fiscal Decentralization On Public Goods Supply Under The View Of Spatial Spillover

In the context of Chinese-style decentralization,the analysis of the combined effects of local government behavior is the main work of this research.The behavioral orientation of local governments is most directly and objectively reflected in the scale and preferences of their fiscal expenditures,and ultimately affects the supply of public goods in other regions,and also has an important impact on the environment on which economic production depends.One of the keys to the continued “economic miracle” of the Chinese economy lies in the need to structure a good governance model.This study attempts to examine the Chinese-style decentralization of public goods supply from the perspective of central and local fiscal relations and local public goods supply,specificly,we aim to examine the comprehensive effects of fiscal decentralization,and the impact of decentralized governance and accompanying government competition on the scale of fiscal expenditure,public goods spillovers,public expenditure structure and preferences.Before conducting specific research work,we first systematically sort out and summarize the evolution of Chinese-style fiscal decentralization,and summarize the main effects of Chinese-style decentralization,which will provides a good institutionalized background support for us to analyze local government behavior.We explain the evolution,main features and main effects of Chinese-style fiscal decentralization.Fiscal decentralization has largely determined the distribution of local government interests through the adjustment of local affairs and financial power,which has profoundly affected the main function of local government public goods supply.With the gradual decentralization of fiscal power,the model of regional economic development led by local development gradually emerged,and local governments began economic competition at the regional level on the basis of their own financial growth.The GDP-oriented performance appraisal index of local officials closely combines the development of local economy with political governance.In the context of the promotion of officials,public expenditure is in the cycle of “decentralization – land finance increase – increase public productive expenditure” with continuous expansion.The following research starts from the scale effect,spillover effect,preference effect and environmental benefit of fiscal decentralization:The purpose of the first part is to explore mechanism of fiscal decentralization's impact on government scale.Following the previous theoretical research,we apply general endogenous growth model to study such a correlation from both the revenue and expenditure side of fiscal decentralization.We test the linear relationship with Chinese 1994-2015 panel data,using the static and dynamic model,and we also make a validation on the nonlinear relationship between expenditure decentralization and the size of local government using the panel threshold model.In this paper,research has shown that the effect of revenue decentralization and expenditure decentralization on government size is totally different.Furthermore,it is worth noting that the scale of decentralization and local government spending end relationship is nonlinear,and the result depends on the transfer payment dependence,public expenditure structure parameters and the local public goods supply capacity.In the second part,it examines the spillover effect of fiscal decentralization on the provision of local public goods.The paper's objectives are as follows.First,we seek to discuss whether fiscal decentralization can affect “Promotion Tournament Game” among local governments through spillover effect of local public goods supply.Second,we also examine the intrinsic mechanism of such decentralized spillover effect.Finally,we analyze,if the spillover effect is possible,how much influence of fiscal decentralization on local public provision from both expenditure and revenue perspectives.Our analysis is based on a user fee model.The panel data from 31 Chinese provinces for the period of 1994-2013 are estimated using the spatial econometric method.The results show that revenue decentralization is negatively related to the local public provision,which is consistent with the “Leviathan hypothesis”.However,expenditure decentralization leads to an increase in the local public provision,which statistically proves the fierce competition in “Promotion Tournament Game” among Chinese governments.In the third part,Chinese government controls enormous productive resources,which will have strong capability for intervening in the factor market,and thus reasonable fiscal policy is of great concern for promoting productive factor distribution pattern.This paper examines how fiscal decentralization would influence capital-labor allocation.We conduct our survey through both theoretical and empirical analysis.Based on a general equilibrium model,wefind that revenue decentralization is an ability guarantee for tax preference to attract foreign investment,leading productive factor distribution tilts to capital and thus labor remuneration declines.However,expenditure decentralization does oppositely because it more likely to be put forward as a tool to regulate the income gap.Using the spatial econometrics method,the empirical result significantly proves the results on Chinese provincial panel data.One implied policy suggestion is that we should more emphasize the adjustment of public expenditure preference in order topromote factor distribution pattern.In the forth part,externality is a form of market failure,and also a starting point for government intervention.Environmental quality,as local public goods,has a characteristic of regional spillover,thus the intervention of government is crucial.Fiscal policy is widely seen as an effective tool for environmental management.The existing literature about fiscal decentralization's effect on environmental pollution did not consider about spatial correlation in factor market segmentation.To explore such decentralized effect through factor distortions,we develop a two-sector model on the constraint of pollution emissions and market segmentations,and conduct an empirical estimation using Chinese provincial panel data from 15 years.The results show that there is a big difference between expenditure and revenue decentralization on pollution,furthermore,market segmentation exacerbated the environmental effects of fiscal decentralization and its positive role on environmental pollution is statistically more significant.Therefore,a better way out of pollution for policy making viewpoint is to adjust the decentralization structure and to break the productive factor market segmentation.