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Fiscal Incentives, Public Spending, and Productivity – County-Level Evidence from a Chinese Province

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  • Brehm, Stefan

Abstract

This article develops a new empirical approach to analyze the potential link between fiscal decentralization and economic efficiency based on a stochastic frontier model with spatial error correction. Fiscal decentralization is not considered to be a source of growth in itself but an incentive scheme that impacts local governments’ spending as a means to improve investment conditions. Panel data for Zhejiang Province during 1995–2005 indicate that revenue and expenditure decentralization both promoted allocative efficiency. Yet, the impact of fiscal incentives decreases with rising income inequality among county governments.

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  • Brehm, Stefan, 2013. "Fiscal Incentives, Public Spending, and Productivity – County-Level Evidence from a Chinese Province," World Development, Elsevier, vol. 46(C), pages 92-103.
    • Handle: RePEc:eee:wdevel:v:46:y:2013:i:c:p:92-103
    DOI: 10.1016/j.worlddev.2013.01.029
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    8. Yongzheng Liu & Jorge Martinez-Vazquez & Alfred M. Wu, 2017. "Fiscal decentralization, equalization, and intra-provincial inequality in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 248-281, April.
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    11. Jingdong Li & Qingning Lin, 2022. "Can the Adjustment of China’s Grain Purchase and Storage Policy Improve Its Green Productivity?," IJERPH, MDPI, vol. 19(10), pages 1-24, May.
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    13. Bergantino, Angela Stefania & Intini, Mario & Volta, Nicola, 2020. "Spatial competition and efficiency: an investigation in the airport sector," The Warwick Economics Research Paper Series (TWERPS) 1287, University of Warwick, Department of Economics.
    14. Liu, Dayong & Xu, Chunfa & Yu, Yongze & Rong, Kaijian & Zhang, Junyan, 2020. "Economic growth target, distortion of public expenditure and business cycle in China," China Economic Review, Elsevier, vol. 63(C).
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    16. Jiang, Weijie & Li, Yidong, 2023. "Effect of fiscal decentralization on pollution reduction: Firm-level evidence from China," Economic Modelling, Elsevier, vol. 129(C).

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