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Fiscal decentralization, public spending, and economic growth in China

  • Zhang, Tao
  • Zou, Heng-fu

The authors of this report use data on China to demonstrate how the allocation of fiscal revenue and expenditures between central and local governments has affected economic growth since reforms that began in the late 1970s. They find a higher degree of fiscal decentralization associated with lower provincial economic growth over the past 15 years in China. This implies that fiscal reforms begun in China in the early 1980s have probably failed to promote the country's economic growth. This result is consistently significant and robust in their empirical examinations, and is surprising in light of the argument that fiscal decentralization usually contributes positively to provincial or local economic growth.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 67 (1998)
Issue (Month): 2 (February)
Pages: 221-240

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Handle: RePEc:eee:pubeco:v:67:y:1998:i:2:p:221-240
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  1. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association, vol. 46(2), pages 237-43, June.
  2. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  3. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
  4. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  5. Sam Peltzman, 1980. "The Growth of Government," University of Chicago - George G. Stigler Center for Study of Economy and State 1, Chicago - Center for Study of Economy and State.
  6. Prud'homme, Remy, 1995. "The Dangers of Decentralization," World Bank Research Observer, World Bank Group, vol. 10(2), pages 201-20, August.
  7. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
  8. Bird, Richard & Wallich, Christine, 1993. "Fiscal decentralization and intergovernmental relations in transition economics : toward a systematic framework of analysis," Policy Research Working Paper Series 1122, The World Bank.
  9. Bird, Richard M., 1993. "Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization," National Tax Journal, National Tax Association, vol. 46(2), pages 207-27, June.
  10. Heng-fu Zou, 1995. "Dynamic Effects of Federal Grants on Local Spending," CEMA Working Papers 93, China Economics and Management Academy, Central University of Finance and Economics.
  11. Heng-fu Zou, 1994. "Taxes, Federal Grants, Local Public Spending, and Growth," CEMA Working Papers 78, China Economics and Management Academy, Central University of Finance and Economics.
  12. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  13. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  14. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
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