Transfer Payment, Economic Convergence And Regional Fiscal Equalization

With the quick development of the economy, the economic gap between different regions has widened and the corresponding fiscal status of different governments goes the same way. Therefore, the public goods they can provide for their residents also enjoy great disparity, which goes against the realization of fairness and justice of the society. From the view of theory, the intergovernmental transfer payment provides an important way of maintaining the balance of the fiscal status of local government. It can secure the equal provision of public goods and hence adjust the development pace of local economy and narrow down the gap of residential welfare between different regions. However, after several years of the function of intergovernmental transfer payment system, we still face a considerable disparity among regions. At the same time, the current literature research raises doubt of the actual effects of our intergovernmental transfer payment system.Therefore, this paper analyzes the effects of intergovernmental transfer payment to the equalization of fiscal status in different counties from 2003 to 2009. With the combination of direct effects and indirect effects, this paper aims to give a comprehensive remark of the effects to the equalization of fiscal status to local government. The direct effects of intergovernmental transfer payment mean, when higher levels of government regulates the fiscal status of regional governments through redistribution, intergovernmental transfer payment affects the regional fiscal equalization directly in the short term. By the contrast, the indirect effects of intergovernmental transfer payment mean, after the transfer payment reaches local governments, intergovernmental transfer payment affects the regional fiscal equalization through affecting local economic development and local own finance.First, the paper adopts traditional indices, Gini coefficient decomposition method and the correlation analysis to evaluate the direct effects of intergovernmental transfer payment to the equalization of fiscal status in different counties. Second, based on the concept of absolute convergence from the new classical economics, the paper constructs a cross section regression model to estimate the roles intergovernmental transfer payment play to the regional economic convergence and to the regional own financial convergence. Furthermore, the paper tries to analyze the problem from the perspective of transfer payment structure. Then the paper analyzes the effects of the special transfer payment and the financial transfer payment to the equalization of fiscal status in different counties. However, the classification criteria of intergovernmental transfer payment adjusted frequently in this period. The classified data on county level is not readily available, which is an obstacle for deep analysis.To sum it up, with the combination of both the direct and indirect effects of the intergovernmental transfer payment, the paper conducts a general analysis of the role it plays to the equalization of fiscal status among local government and proves it failed in both ways. At last, to cope with this situation, the paper proposes several emerging reasons and related solutions and advices.