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Fiscal decentralization, collusion and government size in China's transitional economy

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  • Chien-Hsun Chen

Abstract

This paper examines the public sector in China's transitional economy, with the aim of testing the validity of a variety of hypotheses, namely the Brennan and Buchanan (1980, The Power to Tax: Analytical Foundations of a Fiscal Constitution, CUP, Cambridge); Oates-Wallis (1985, American Economic Review, 75(4) 748-57) version of the decentralization hypothesis and the Brennan and Buchanan collusion hypothesis, on the impact of fiscal decentralization at the provincial level. Pooled cross-section (province) and time-series data are employed with the period under consideration being 1986-1998. An error components technique is also used for the empirical testing. The empirical results provide evidence to support both the Oates-Wallis hypothesis and the collusion hypothesis that an increase in fiscal decentralization leads to a higher level of provincial government expenditure. The study also finds that the central and provincial governments are provided with an incentive to form collusive agreements through extra-budgetary funds.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 11 ()
Pages: 699-705

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Handle: RePEc:taf:apeclt:v:11:y:2004:i:11:p:699-705

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  1. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-62, December.
  2. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
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Cited by:
  1. Elliott Parker & Judith Thornton, 2006. "Fiscal Centralization and Decentralization in Russia and China," Working Papers 06-013, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics.
  2. Jia, Junxue & Guo, Qingwang & Zhang, Jing, 2014. "Fiscal decentralization and local expenditure policy in China," China Economic Review, Elsevier, vol. 28(C), pages 107-122.
  3. Alfred Wu & Mi Lin, 2012. "Determinants of government size: evidence from China," Public Choice, Springer, vol. 151(1), pages 255-270, April.
  4. Yingxin Shi & Mototsugu Fukushige, 2013. "Long-Run Fiscal Multiplier for Autonomous Prefectures in China," Discussion Papers in Economics and Business 13-10, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  5. Mototsugu Fukushige & Yingxin Shi, 2013. "Intergovernmental Fiscal Relationships in China: A Simple Model Based on the Nonsymmetric Nash Solution," Discussion Papers in Economics and Business 13-21, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Wang, Zhiguo & Ma, Liang, 2012. "New Development of Fiscal Decentralization in China," MPRA Paper 36918, University Library of Munich, Germany.
  7. Zhiguo Wang & Liang Ma, 2014. "Fiscal Decentralization in China: A Literature Review," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 51-65, May.

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