Impact Of Chinese-style Fiscal Decentralization On Economic Growth And Income Gap

Since reform and opening-up, China’s economic growth has made remarkable achievements, with an average growth rate of close to10%. The sustained and rapid growth is also very rare in the worldwide and praised as "China miracle". The emergence of the "China miracle" is the outcome of combined action of many different factors. Among these factors, the fiscal system reform plays an important role. China’s fiscal system reform is a process of separation of fiscal powers. The system of fiscal decentralization (FD) is one of the vital contents in Chinese economic system reform, however, whether the FD has an actual positive effect on the economic growth, different economists give different viewpoints.This paper adopted empirical study, standardize study and some other research methods to research this question comprehensively. First of all, based on the review of relevant theory and literature, complies and summarizes the Chinese FD reform process and main features. Second, based on an endogenous model, the paper introduce the central government and local government public expenditure into the production function and utility function, and use panel date from1997to2012in China to examine the linkage between Chinese FD and local economic growth. In addition, the paper further use Chinese provincial panel date to examine the Chinese FD’s effect on the regional gap and the gap between urban and rural areas. The empirical analysis indicates that the fiscal decentralization bears positive effect on local economic growth while lead to the increasing income gap. Finally, based on the results of empirical analysis, the paper put some policy suggestions for the next phase of financial management system reform in our country, so that the Chinese FD can play the maximum benefit and reduce the cost of reform to minimum.