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Fiscal Decentralisation and Local Economic Growth: Evidence from a Fiscal Reform in China

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  • Guangrong Ma
  • Jie Mao

Abstract

This paper uses a fiscal decentralisation reform in China – namely, the province‐managing‐county (PMC) reform – to examine the effects of fiscal decentralisation on local economic growth. The PMC reform abolished the subordinate fiscal relationship between prefectures and counties and transferred much of the tax and spending authority from the prefecture to the county level. Exploiting a county‐level panel data set over 2001–11, we find that the reform has led to a significant increase in the GDP growth rate. The effect is considerably more pronounced in regions with superior initial institutional quality. We also identify channels: the PMC reform induced county governments to exert lower tax burdens on firms and increase spending on infrastructure construction.

Suggested Citation

  • Guangrong Ma & Jie Mao, 2018. "Fiscal Decentralisation and Local Economic Growth: Evidence from a Fiscal Reform in China," Fiscal Studies, John Wiley & Sons, vol. 39(1), pages 159-187, March.
    • Handle: RePEc:wly:fistud:v:39:y:2018:i:1:p:159-187
    DOI: 10.1111/j.1475-5890.2017.12148
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    Cited by:

    1. Gong, Qiang & Liu, Chong & Wu, Min, 2021. "Does administrative decentralization enhance economic growth? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 94(C), pages 945-952.
    2. Huang, Hongyun & Wang, Fengrong & Song, Malin & Balezentis, Tomas & Streimikiene, Dalia, 2021. "Green innovations for sustainable development of China: Analysis based on the nested spatial panel models," Technology in Society, Elsevier, vol. 65(C).
    3. Cordelia Onyinyechi Omodero, 2022. "Value-Added Tax Revenue Transfers and Regional Social Development: Evidence from Nigeria," Sustainability, MDPI, vol. 14(21), pages 1-15, November.
    4. Shanmugam K. & Shanmugam K. Rangasamy, 2024. "Impact of fiscal transfers policy on regional growth convergence in India," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 29(1), pages 38-55, January.
    5. Bo, Shiyu & Cheng, Chao, 2021. "Political hierarchy and urban primacy: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 49(4), pages 933-946.
    6. Boukbech, Rachid & Liouaeddine, Mariem, 2021. "Impact de la décentralisation fiscale sur l’inclusion sociale au niveau local au Maroc Une analyse empirique à l’aide de l’approche ARDL en séries chronologiques [Impact of fiscal decentralization ," MPRA Paper 110548, University Library of Munich, Germany.
    7. Leonardo Letelier S. & Héctor Ormeño, 2018. "El mapa de la descentralización fiscal en Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 21(3), pages 004-040, December.
    8. Junhua Chen & Na Liu, 2022. "The impact of fiscal decentralization on the efficiency in social housing provision: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3404-3418, December.
    9. Bo, Shiyu & Wu, Yiping & Zhong, Lingna, 2020. "Flattening of government hierarchies and misuse of public funds: Evidence from audit programs in China," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 141-151.
    10. Melike Bildirici & Sema Yılmaz Genç & Özgür Ömer Ersin, 2023. "Effects of Fiscal and Monetary Policies, Energy Consumption and Economic Growth on CO 2 Emissions in the Turkish Economy: Nonlinear Bootstrapping NARDL and Nonlinear Causality Methods," Sustainability, MDPI, vol. 15(13), pages 1-23, July.
    11. Zhu, Jun & Zhang, Linling, 2022. "Evolutionary game analysis of the implementation of fiscal policy in resource-based cities," Resources Policy, Elsevier, vol. 76(C).
    12. Muhammad Shahid & Rukhsana Kalim, 2020. "Decentralized Tax Revenue, Institutional Complementarity and Economic Growth: A Time Series Analysis of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 25-33.
    13. Muhammad Shahid & Khalil Ahmad & Muhammad Mudassar Naushahi & Muhammad Amir Inayat, 2024. "Tax Decentralization and Economic Growth of Pakistan: The Role of Political Institutions," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 78-88.
    14. Faradilla Herlin & M. Rachmad R. & Zamzami Zamzami & Muhammad Safri & Syahmardi Yacob, 2022. "Improvement strategy for regional financial performance affecting macroeconomics in regency/city in Jambi province," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(8), pages 401-408, November.
    15. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    16. Jin, Haizhen, 2023. "Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments," Economic Modelling, Elsevier, vol. 119(C).
    17. Nupur Nirola & Sohini Sahu & Atrayee Choudhury, 2022. "Fiscal decentralization, regional disparity, and the role of corruption," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 68(3), pages 757-787, June.

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