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

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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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Nyckelord

Originalspråkengelska
Sidor (från-till)92-103
TidskriftWorld Development
Volym46
StatusPublished - 2013
PublikationskategoriForskning
Peer review utfördJa