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The welfare effects of fiscal decentralization: a simple model and evidence from China

Author

Listed:
  • Liangliang Liu

    () (Nanjing University of Finance & Economics)

  • Donghong Ding

    () (University of Science and Technology of China)

  • Jun He

    () (University of Science and Technology of China)

Abstract

Abstract This study extends the model of three levels of government to two levels, namely, the central government and local government, and uses the Hamilton function method to explore the dynamic relationship between fiscal decentralization and social welfare level. The study uses numerical simulation, results of which reveal that fiscal decentralization and social welfare display an inverse U-shaped relationship. The study also uses China’s panel data to perform an empirical investigation. Our findings demonstrate empirical results that verify the correctness of the theoretical results. This study also analyzes the regional differences in the relationship between fiscal decentralization and social welfare and demonstrates that fiscal decentralization and social welfare have an inverse U-shaped relationship in the eastern, central, and western areas of China, but they still present regional differences. Finally, policies and recommendations are proposed.

Suggested Citation

  • Liangliang Liu & Donghong Ding & Jun He, 2019. "The welfare effects of fiscal decentralization: a simple model and evidence from China," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(1), pages 417-434, January.
  • Handle: RePEc:spr:qualqt:v:53:y:2019:i:1:d:10.1007_s11135-018-0761-2
    DOI: 10.1007/s11135-018-0761-2
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    More about this item

    Keywords

    Endogenous growth; Fiscal decentralization; Social welfare; China;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D69 - Microeconomics - - Welfare Economics - - - Other
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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