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Fiscal decentralization, government self-interest and fiscal expenditure structure bias

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  • Li, Sen
  • Li, Guangying

Abstract

Fiscal decentralization strengthens local governments' authority and expenditure responsibilities, improves the efficiency of financial resource allocation, and has a far-reaching and unique impact on local governments' expenditure behavior. The government's self-interest must be premised on the public nature, and the overexpansion of self-interest will inevitably bring a series of drawbacks and jeopardize the high-quality development of the economy. Does the incentive of fiscal decentralization to local governments increase their self-interest to a certain extent, leading to changes in the expenditure structure? This paper examines the impact of fiscal decentralization on the degree of self-interest of local governments, and the degree of self-interest of local governments on the bias of fiscal expenditure structure by using inter-provincial panel data in China from 2005 to 2020. It is found that fiscal decentralization expands the degree of self-interest of local governments, leading to a bias in the expenditure structure towards non-livelihood expenditures.

Suggested Citation

  • Li, Sen & Li, Guangying, 2024. "Fiscal decentralization, government self-interest and fiscal expenditure structure bias," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1133-1147.
    • Handle: RePEc:eee:ecanpo:v:81:y:2024:i:c:p:1133-1147
    DOI: 10.1016/j.eap.2024.01.014
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