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Fiscal decentralization, public spending, and economic growth in China

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Author Info

  • Tao Zhang

    (Institute of Advanced Studies, Wuhan University
    Policy Research Department, World Bank)

  • Heng-fu Zou

    (Institute of Advanced Studies, Wuhan University
    Policy Research Department, World Bank)

Abstract

This study of China demonstrates how the allocation of fiscal resources between the central and local governments has affected economic growth since reforms began in the late 1970s. We find that a higher degree of fiscal decentralization of government spending is associated with lower provincial economic growth over the past fifteen years. This consistently significant and robust result in our empirical examinations is surprising in light of the argument that fiscal decentralization usually makes a positive contribution to local economic growth.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 58.

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Length: 20 pages
Date of creation: 2001
Date of revision:
Publication status: Published in Journal of Public Economics, Volume 67, Issue 2, 1 February 1998, Pages 221-240
Handle: RePEc:cuf:wpaper:58

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Web page: http://cema.cufe.edu.cn/
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Keywords: Fiscal decentralization; Public spending; Growth; Chinese economy;

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References

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  1. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  2. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers 77, China Economics and Management Academy, Central University of Finance and Economics.
  3. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  4. Heng-fu Zou, 1995. "Dynamic Effects of Federal Grants on Local Spending," CEMA Working Papers 93, China Economics and Management Academy, Central University of Finance and Economics.
  5. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  6. Bird, Richard M., 1993. "Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization," National Tax Journal, National Tax Association, vol. 46(2), pages 207-27, June.
  7. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  8. Bird, Richard & Wallich, Christine, 1993. "Fiscal decentralization and intergovernmental relations in transition economics : toward a systematic framework of analysis," Policy Research Working Paper Series 1122, The World Bank.
  9. Zou, Heng-fu, 1996. "Taxes, Federal Grants, Local Public Spending, and Growth," Journal of Urban Economics, Elsevier, vol. 39(3), pages 303-317, May.
  10. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
  11. Prud'homme, Remy, 1995. "The Dangers of Decentralization," World Bank Research Observer, World Bank Group, vol. 10(2), pages 201-20, August.
  12. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
  13. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association, vol. 46(2), pages 237-43, June.
  14. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-87, October.
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