Rising Chinese regional income inequality: The role of fiscal decentralization
This article examines the quantitative effects of the Chinese fiscal system on the increasing regional income inequality in China, from 1978 to 2007. Fiscal decentralization is a multifaceted concept not likely to be captured by a single measure. This paper investigates the evolution of three aspects of fiscal decentralization including spending decentralization, revenue decentralization, and autonomy power, and tests the effects of each aspect on the regional income inequality in China in the past thirty years. Several critical findings were obtained through econometric analysis. The fiscal decentralization on spending side in China has contributed to rising income inequality over the last three decades. On the revenue side, the fiscal system became more decentralized from mid-1980s to 1994, and re-centralized after the 1994 tax sharing reform. The econometric analysis shows that the increase in revenue share of local governments from mid-1980s to 1994 indeed increased regional inequality, while the revenue re-centralization in 1994 only had a modest effect on reducing regional inequality. In terms of autonomy power measured by how public spending at local level of government is maintained by its own revenue, the degree of fiscal decentralization decreased since mid-1980s, and experienced a sharp reduction in 1994 due to the tax sharing reform. The autonomy power has mixed effects on regional inequality in the two periods, before and after the 1994 reform, depending on the targeting of fiscal transfers and the incentives of local governments. As it turns out, fiscal decentralization may not be automatically equalizing or anti-equalizing, whereas how fiscal decentralization is promoted is important for how it impacts regional inequality.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- LIU, Mingxing & XU, Zhigang & SU, Fubing & TAO, Ran, 2012. "Rural tax reform and the extractive capacity of local state in China," China Economic Review, Elsevier, vol. 23(1), pages 190-203.
- Masashi Hoshino, 2011. "Measurement of GDP per capita and regional disparities in China, 1979-2009," Discussion Paper Series DP2011-17, Research Institute for Economics & Business Administration, Kobe University, revised Apr 2011.
- Lyons, Thomas P, 1991. "Interprovincial Disparities in China: Output and Consumption, 1952-1987," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 471-506, April.
- Kanbur, Ravi & Zhang, Xiaobo, 2004.
"Fifty Years of Regional Inequality in China: A Journey through Central Planning, Reform, and Openness,"
Working Paper Series
UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- Ravi Kanbur & Xiaobo Zhang, 2005. "Fifty Years of Regional Inequality in China: a Journey Through Central Planning, Reform, and Openness," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 87-106, 02.
- Ravi Kanbur & Xiaobo Zhang, 2004. "Fifty Years of Regional Inequality in China: A Journey Through Central Planning, Reform and Openness," Working Papers 158, Institute for Social and Economic Change, Bangalore.
- Nobuo Akai & Masayo Hosio, 2009.
"Fiscal Decentralization, Commitment and Regional Inequality: Evidence from State-level Cross-sectional Data for the United States,"
Journal of Income Distribution,
Journal of Income Distribution, vol. 18(1), pages 113-129, March.
- Nobuo Akai & Masayo Sakata, 2005. "Fiscal Decentralization, Commitment and Regional Inequality: Evidence from State-level Cross-sectional Data for the United States," CIRJE F-Series CIRJE-F-315, CIRJE, Faculty of Economics, University of Tokyo.
- Perron, P., 1986.
"Trends and Random Walks in Macroeconomic Time Series: Further Evidence From a New Approach,"
Cahiers de recherche
8650, Universite de Montreal, Departement de sciences economiques.
- Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332.
- Dollar, David, 2007. "Poverty, inequality, and social disparities during China's economic reform," Policy Research Working Paper Series 4253, The World Bank.
- Qian WANG & Chunli SHEN & Heng-fu ZOU, 2009.
"Local Government Tax Effort In China: An Analysis Of Provincial Tax Performance,"
Region et Developpement,
Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 203-236.
- Qian Wang & Chunli Shen & Heng-fu Zou, 2011. "Local Government Tax Effort in China: an Analysis of Provincial Tax Performance," CEMA Working Papers 483, China Economics and Management Academy, Central University of Finance and Economics.
- Qian, Yingyi & Roland, Gerard, 1998.
"Federalism and the Soft Budget Constraint,"
American Economic Review,
American Economic Association, vol. 88(5), pages 1143-62, December.
- Jaime Bonet, 2006. "Fiscal decentralization and regional income disparities: evidence from the Colombian experience," The Annals of Regional Science, Springer, vol. 40(3), pages 661-676, August.
- Yang Song, 2012. "Poverty Reduction in China: The Contribution of Popularizing Primary Education," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(1), pages 105-122, 01.
- Huang, Bihong & Chen, Kang, 2012. "Are intergovernmental transfers in China equalizing?," China Economic Review, Elsevier, vol. 23(3), pages 534-551.
- Lessmann, Christian, 2009.
"Fiscal decentralization and regional disparity: Evidence from cross-section and panel data,"
Dresden Discussion Paper Series in Economics
08/09, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Christian Lessmann, 2009. "Fiscal decentralization and regional disparity: evidence from cross-section and panel data," Environment and Planning A, Pion Ltd, London, vol. 41(10), pages 2455-2473, October.
- Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
- Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
- Jorge Martinez-Vazquez & Andrey Timofeev, 2009. "Decentralization Measures Revisited," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0913, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- World Bank, 2002. "China - National Development and Sub-National Finance : A Review of Provincial Expenditures," World Bank Other Operational Studies 15423, The World Bank.
- Shah, Anwar, 2004. "Fiscal decentralization in developing and transition economies: progress, problems, and the promise," Policy Research Working Paper Series 3282, The World Bank.
- Yingyi Qian & Barry R. Weingast, 1997.
"Federalism as a Commitment to Preserving Market Incentives,"
97042, Stanford University, Department of Economics.
- Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
- Whalley, John & Zhang, Shunming, 2007. "A numerical simulation analysis of (Hukou) labour mobility restrictions in China," Journal of Development Economics, Elsevier, vol. 83(2), pages 392-410, July.
- Junichi Ito, 2008. "The removal of institutional impediments to migration and its impact on employment, production and income distribution in China," Economic Change and Restructuring, Springer, vol. 41(3), pages 239-265, September.
When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:27:y:2013:i:c:p:294-309. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.