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The tradeoff between growth and equity in decentralization policy: China's experience

Listed author(s):
  • Qiao, Baoyun
  • Martinez-Vazquez, Jorge
  • Xu, Yongsheng

This paper investigates the potential tradeoff between economic growth and regional equity in the design of fiscal decentralization policy in the context of China's experience. We develop a theoretical model of fiscal decentralization, where overall national economic growth and equity in the regional distribution of fiscal resources are the two objectives pursued by the central government. The model is tested using panel data for 1985-98. We find that fiscal decentralization in China has led to economic growth as well as to significant increases in regional inequality.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304-3878(07)00045-4
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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 86 (2008)
Issue (Month): 1 (April)
Pages: 112-128

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Handle: RePEc:eee:deveco:v:86:y:2008:i:1:p:112-128
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. Sylvie DEMURGER & BAO & CHANG & MELLINGER & SACHS & Wing Thye WOO, 2001. "Geography, Economic Policy and Regional Development in China," Working Papers 200109, CERDI.
  2. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
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  4. Chen, Jian & Fleisher, Belton M., 1996. "Regional Income Inequality and Economic Growth in China," Journal of Comparative Economics, Elsevier, vol. 22(2), pages 141-164, April.
  5. Kanbur, Ravi & Zhang, Xiaobo, 1999. "Which Regional Inequality? The Evolution of Rural-Urban and Inland-Coastal Inequality in China from 1983 to 1995," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 686-701, December.
  6. Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
  7. Anuradha Dayal-Gulati & Aasim M. Husain, 2002. "Centripetal Forces in China's Economic Takeoff," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 4-4.
  8. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  9. Tao Zhang & Heng-fu Zou, 1996. "Fiscal decentralization, public spending, and economic growth in China," Policy Research Working Paper Series 1608, The World Bank.
  10. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
  11. John Knight & Li Shi, 1999. "Fiscal decentralization: Incentives, redistribution and reform in China," Oxford Development Studies, Taylor & Francis Journals, vol. 27(1), pages 5-32.
  12. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  13. Shang-Jin Wei & Yi Wu, 2001. "Globalization and Inequality: Evidence from Within China," NBER Working Papers 8611, National Bureau of Economic Research, Inc.
  14. Hehui Jin & Yingyi Qian & Barry Weingast, 1999. "Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style," Working Papers 99013, Stanford University, Department of Economics.
  15. Prud'homme, Remy, 1995. "The Dangers of Decentralization," World Bank Research Observer, World Bank Group, vol. 10(2), pages 201-220, August.
  16. Justin Yifu Lin & Zhiqiang Liu, 2000. "Fiscal Decentralization and Economic Growth in China," Economic Development and Cultural Change, University of Chicago Press, vol. 49(1), pages 1-21.
  17. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 149-185.
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