Fiscal Decentralization and Upgrading of Industrial Structure: Empirical Evidence from a Quasi-Natural Experiment of Province-Managing-County Reform
- WANG Liyong, GAO Yuyan
- Central University of Finance and Economics, 100081.
This paper takes the province-managing-county (PMC) reform in Shanxi as a quasi-natural experiment, employing county-level panel data from 2002 to 2015 and the difference-in-difference method to evaluate the causal effect of fiscal decentralization on industrial structure upgrading. The empirical study results show that the PMC reform makes more discretions on fiscal balance and economic activities devolved to PMC counties, stimulating local government to develop the economy, thus significantly promoting the county industrial structure upgrading. This means that the increase of fiscal decentralization helps to promote regional industrial structure upgrading. The causal effect of fiscal decentralization on the upgrading of industrial structure has dynamic heterogeneity, and the effect tends to rise over time. In other words, the effect of PMC reform on the upgrading of industrial structure becomes more significant over time. Besides, fiscal decentralization promotes industrial structure upgrading through increased marketization. In addition, we conduct a battery of robustness checks, and the conclusion is proved to be robust. Finally, we draw essential conclusions and make out corresponding policy implications.
- Fiscal Decentralization, Province-Managing-County, Upgrading of Industrial Structure, Quasi-Natural Experiment, Difference-in-Difference