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Financial decentralization, fiscal institutions, and development quality: Evidence from China

Author

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  • Chen, Yongli
  • Yin, Jinpeng
  • Wan, Zhicheng
  • Wu, Ruofan

Abstract

This paper examines how financial decentralization affects high-quality economic development using panel data for 31 Chinese provinces from 2013 to 2023. Employing a spatial Durbin model, we find that financial decentralization significantly enhances local development quality and generates positive spatial spillovers across neighboring regions. Further analysis indicates that stronger local fiscal capacity supports the translation of financial decentralization into development quality, highlighting the fiscal foundations of decentralized financial governance. In addition, a panel threshold model reveals a nonlinear pattern: the development-enhancing role of financial decentralization weakens once fiscal decentralization exceeds a critical threshold, and most province–year observations already fall within this attenuated regime. Overall, the findings underscore the importance of institutional complementarities between financial and fiscal decentralization and offer insights for emerging economies seeking to balance decentralization, financial efficiency, and development quality.

Suggested Citation

  • Chen, Yongli & Yin, Jinpeng & Wan, Zhicheng & Wu, Ruofan, 2026. "Financial decentralization, fiscal institutions, and development quality: Evidence from China," Finance Research Letters, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:finlet:v:100:y:2026:i:c:s1544612326004988
    DOI: 10.1016/j.frl.2026.109969
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