The Impact Of Fiscal Decentralization On Economic Growth And Public Goods Expenditure After Tax Sharing

This paper studies the relationship between the county-level fiscal decentralization and economic growth as well as non-productive public goods expenditures. It’s a long time since the discussion about the impact of fiscal decentralization on economic growth starts, and it has not yet come to a unified conclusion. Most of the previous studies focused on provincial decentralization. But I’ll draw my own conclusions from county decentralization. We use two thousand counties’data as the sample, with individual panel data model to do regression. The results show as follows:No matter from the self-sufficiency rate of finance or revenue decentralization, decentralization has an obviously negative influence on the economic growth. Self-sufficiency rate of financial and revenue decentralization raised could promote the provision of public goods, but this effect in each region has different performance. Self-sufficiency rate of all regions have the positive effect on public goods provision, and revenue decentralization in western areas play a clear role in promoting public goods provision than in the eastern and central regions.This paper argues that there are two ways fiscal decentralization restrain economic growth:firstly, local governments launch race to the bottom competition, which leads to the abuse of capital and land resources.Secondly, the reform of tax sharing system leaves extra budgetary income means-land-transferring fees owned by local governments only. With the financial situation worsen, the local government vigorously push land sales and house prices up. The increase of floating population living cost leads to the reduction of urbanization process.In the second part, the effect of fiscal decentralization to public goods expenditure is positive. That shows although local governments facing greater financial pressure, given by the people of the pressure of public opinion, won’t reduce the expense of public goods investment. And a lot of excellent professionals choose to work in the city with better public service and settled in, which complete the process of "vote with their feet". The Western Development starts in2000, this is the initial period of the measurement, the support of national policy make public service in the west is chasing the trend.