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Fiscal Decentralization or Centralization: Diverging Paths of Chinese Cities

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  • Shiming Yang

Abstract

If fiscal decentralization promotes growth, why do some regions decentralize more than others? This article identifies the growing divergence of fiscal centralization among Chinese cities and explains it in a public finance framework. It argues that fiscal decentralization and its economy‐liberalizing effect entail significant short‐term fiscal risk. The more a locality relies on uncompetitive business ownership for fiscal revenue, the less likely fiscal decentralization is to occur. This article compiles a dataset of 20 provincial capitals between 1999 and 2016 to test for the connection between a city's tax base and its fiscal centralization level. It then pairs two “most similar” cities to trace how fiscal security concerns drove their fiscal and economic policies apart. This article adds a micro‐level perspective to the literature on fiscal federalism. By pointing out the fiscal constraints confronting local governments, it offers a new angle to understand the different growth paths of Chinese cities.

Suggested Citation

  • Shiming Yang, 2019. "Fiscal Decentralization or Centralization: Diverging Paths of Chinese Cities," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 27(3), pages 102-125, May.
  • Handle: RePEc:bla:chinae:v:27:y:2019:i:3:p:102-125
    DOI: 10.1111/cwe.12282
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    Cited by:

    1. Francisco J. Delgado, 2021. "On the Determinants of Fiscal Decentralization: Evidence From the EU," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 23(56), pages 206-206, February.
    2. Omodero Cordelia Onyinyechi, 2022. "Fiscal Federalism, Tax Independence and Social Enhancement," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 32(4), pages 1-15, December.

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