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Inter-provincial Differences in Decentralization, Fiscal Pressure and the Bias of Basic Public Service Expenditure—From the Perspective of Local Governments' Power and Responsibility Arrangement

【Authors】
SUN Kai, ZHANG Lei
【WorkUnit】
Dongbei University of Finance and Economics, 116025.
【Abstract】

Optimizing the structure of local fiscal expenditure is one of the important points for scientifically and rationally dividing the financial power, administrative power and expenditure responsibilities among local governments. However, the central government's previous reforms of local financial management system rarely touched the division of administrative powers and expenditure responsibilities. As a result, when under financial pressure, local governments would go beyond, neglect or misplace their functions in providing public goods, exercising the corresponding administrative powers and fulfilling expenditure responsibilities. At the same time, the local inter-governmental division of powers and responsibilities, as shown in the decentralization of intra-governmental fiscal revenue and expenditure, will vary according to the differentiated fiscal management system of each province (autonomous region). Based on this, this paper collects and collates relevant data of 286 prefecture-level cities from 2015 to 2017 from the perspective of local inter-governmental division of powers and responsibilities, and uses the generalized method of moments (GMM) to analyze the correlation between the fiscal pressure and local government's basic public service expenditure bias with the given provincial difference in the degree of fiscal decentralization. The research results show that the increase of local government financial pressure will not significantly affect the bias of basic public service expenditure in case of basic coordination and matching of the power and responsibility among local governments at different levels. However, when there is a mismatch, the increase in fiscal pressure will significantly reduce the local public service expenditure bias. Based on this, the paper proposes that while ensuring the basic coordination of financial power, administrative power and expenditure responsibilities among local governments at various levels, the provincial government should delegate financial power, administrative power and expenditure responsibility to the county government level by level or retrieve some of them to make sure provincial and county governments play the main role in exercising the administrative power and fulfilling expenditure responsibility.

 
JEL:H11, H59

【KeyWords】
Decentralization, Expenditure Bias, Power and Responsibility Arrangement, Fiscal Pressure