IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style

  • Hehui Jin
  • Yingyi Qian
  • Barry Weingast

March 1999 Second generation theories of federalism extend traditional approaches by systematically studying the role of government incentives in economic performance. Providing government with the incentive to promote markets is especially acute for developing economies or those in transition from central planning. In these countries, governments have often been the central barrier to economic development. In this paper, we investigate empirically decentralization and fiscal incentives in the central-provincial relationship during China's reform. We find strong correlations between local government revenue collection and local government expenditure. Further, we show that China's fiscal contracting system provides local governments with strong (marginal) fiscal incentives and at the same time improves horizontal distribution across provinces in budgetary spending. We also find that stronger fiscal incentives — measured in terms of higher marginal revenue retention rate — implies faster development of non-state enterprises and more reform in state-owned enterprises. Finally, we compare federalism, Chinese style, with federalism, Russian style.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www-econ.stanford.edu/faculty/workp/swp99013.pdf
Download Restriction: no

Paper provided by Stanford University, Department of Economics in its series Working Papers with number 99013.

as
in new window

Length:
Date of creation: Mar 1999
Date of revision:
Handle: RePEc:wop:stanec:99013
Contact details of provider: Postal: Ralph Landau Economics Building, Stanford, CA 94305-6072
Phone: (650)-725-3266
Fax: (650)-725-5702
Web page: http://www-econ.stanford.edu/econ/workp/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
  2. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 149-185.
  3. Anwar Shah, 2014. "Fiscal federalism and macroeconomic governance : for better or for worse?," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 200-240, May.
  4. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-58, May.
  5. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 183-209, February.
  6. John Knight & Li Shi, 1999. "Fiscal decentralization: Incentives, redistribution and reform in China," Oxford Development Studies, Taylor & Francis Journals, vol. 27(1), pages 5-32.
  7. Martin L. Weitzman, 1980. "The "Ratchet Principle" and Performance Incentives," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 302-308, Spring.
  8. Olivier Blanchard & Andrei Shleifer, 2001. "Federalism With and Without Political Centralization: China Versus Russia," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 8.
  9. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
  10. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
  11. Eric Maskin & Yingyi Qian & Chenggang Xu, 1997. "Incentives, Information, and Organizational Form," Working Papers 97034, Stanford University, Department of Economics.
  12. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
  13. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  14. Lavrov, Aleksei & Litwack, John & Sutherland, Douglas, 2001. "Fiscal federalist relations in Russia: a case for subnational autonomy," MPRA Paper 26537, University Library of Munich, Germany.
  15. Shleifer, Andrei, 1997. "Government in transition," European Economic Review, Elsevier, vol. 41(3-5), pages 385-410, April.
  16. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
  17. Hofman, Bert, 1993. "An analysis of Chinese fiscal data over the reform period," China Economic Review, Elsevier, vol. 4(2), pages 213-230.
  18. Freinkman, Lev & Yossifov, Plamen, 1999. "Decentralization in regional fiscal systems in Russia - trends and links to economic performance," Policy Research Working Paper Series 2100, The World Bank.
  19. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
  20. Yingyi Qian & Gerard Roland, . "Federalism and the Soft Budget Constraint," Working Papers 97045, Stanford University, Department of Economics.
  21. Zhuravskaya, Ekaterina V., 2000. "Incentives to provide local public goods: fiscal federalism, Russian style," Journal of Public Economics, Elsevier, vol. 76(3), pages 337-368, June.
  22. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
  23. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  24. repec:cup:cbooks:9780521027922 is not listed on IDEAS
  25. Wong, Christine P. W. (ed.), 1997. "Financing Local Government in the People's Republic of China," OUP Catalogue, Oxford University Press, number 9780195900279, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wop:stanec:99013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.