Fiscal Incentives, Public Spending, and Productivity – County-Level Evidence from a Chinese Province

Research output: Contribution to journalArticle

Abstract

This article develops a new empirical approach to analyze the potential link between fiscal decentralization and economic efficiency based on a stochastic frontier model with spatial error correction. Fiscal decentralization is not considered to be a source of growth in itself but an incentive scheme that impacts local governments’ spending as a means to improve investment conditions. Panel data for Zhejiang Province between1995 and 2005 indicate that revenue and expenditure
decentralization both promoted allocative efficiency. Yet, the impact of fiscal incentives decreases with rising income inequality among county governments.

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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Other Social Sciences

Keywords

  • China, Spatial dependence, Public spending, Fiscal decentralization, Economic efficiency
Original languageEnglish
Pages (from-to)92-103
JournalWorld Development
Volume46
Publication statusPublished - 2013
Publication categoryResearch
Peer-reviewedYes