The County Government Fiscal Expenditure Competition And Its Eflfect On Economic Growth

Since the reform and opening up, China’s economy has been grown at the rate of nearly10%annually, which was unique in the world. The reform of the economic system is considered to be an important reason for this economic growth miracle. As an important aspect of economic reform, the transformation of the financial system runs through the process of China’s market-oriented reform. From1980’s "fiscal responsibility" to1990’s revenue-sharing", the reform of China’s financial system has actually been in accordance with fiscal decentralization, that is to say, these reforms gradually expand the financial powers of the local government and mobilize the enthusiasm of the local governments for economic development. Given that the core of the official’s evaluation system in China is GDP, the motivation of the county-level government officials for promotion will compete to attract foreign investment and improve local infrastructure conditions, making it possible to improve economic development. Taking into account the implement of tax distribution in1994, the room of tax competition among counties is getting smaller and smaller, so the competition of fiscal spending has been the primary means of competition among the county-level governments. At present, domestic research about local government fiscal expenditure competition is concentrated in the provincial government rather than county government. In fact, the county government will also compete for economic resources. Especially after the reform of Province-Direct-County, the county government obtains more financial resources. The intergovernmental fiscal expenditure competition could also change. So the research of fiscal expenditure competition under is important to test the effect of fiscal decentralization and improve the financial system.In the opinion of domestic economist,"province-direct-county" is the important measure to solve the fiscal deficit and to improve the economy of county, so the scope of the research is confined to the significance and necessity rather than the effect to the government behavior. To make up the defects, I will analysis the county-level data of Hubei Province from2000to2006, our target is to research the tactical interaction among county-governments and its effect on economic growth, we also analysis the impact of this reform on the tactical interaction among county-governments and its effect on economic growth.The reason of choosing Hubei province is the research data is sufficient and the reform measures are perfect. Besides, some studies emphasize that only developed provinces is suitable for carrying out "province-direct-county", but what about undeveloped provinces? Our study will answer this question.The empirical analysis in this part is mainly divided into two parts. First, I test the spatial correlation of fiscal expenditure among counties and fiscal expenditure conpetition by use of SAG model. I find that the fiscal expenditure conpetition among county government is significant relevant. For the fiscal expenditure competition, the result as follows:First, the fiscal spending strategic interaction behavior among the county-level administrative units in Hubei Province is there. The county government’s total fiscal expenditure, agricultural production expenditures, education expenditures, social security expenditure and administrative expenditure has a significant positive impact on the neighbor. Second, the reform of "province-direct-county" has changed the spatial correlation degree of interaction of the county-level intergovernmental to some extent, but did not change its interactive nature. Specifically, the total fiscal expenditure and agricultural production expenditure increased, but education expenditure, social security expenditure, and administrative expenses were weakened.Second, I analysis the economic growth effects of the interaction of county-level intergovernmental fiscal expenditure policy by2-sls:the fiscal spending competition among county-governments has a significant impact on economic growth. The impact of total fiscal expenditure and administrative spending is positive, but the expenditure on social security expenditure, agricultural production, education is significantly negative. The reform of "province-direct-county" weakens the impact of fiscal conpetition on economics. This shows that although the target of "province-direct-county" is to promote the development of county economy, but it cannot come true through fiscal expenditure competition.According to the empirical result, I put forward some suggestions about how to perfect "province-direct-county"Based on the background of "province-direct-county", this paper studies the problem of fiscal spending tactical interaction among county-governments in Hubei Province, which will rich the research on the theory of fiscal competition, and will provide some suggestions about the reform of "province-direct-county" in other provinces.