The Benefits and Costs of Fiscal Decentralization in China

This book examines China's fiscal decentralization and its economic impact through local government incentives. It focuses on three key areas: expenditure decentralization, revenue decentralization and intergovernmental transfers. The analysis weighs the benefits and costs of these fiscal practices in terms of China's economic development.

The author observes that China’s high degree of fiscal expenditure and revenue decentralization has empowered local governments to pursue economic development vigorously. However, it has also caused insufficient incentives for providing public welfare services and adjusting income distribution. This has exacerbated local protectionism and fragmented the domestic market. While intergovernmental transfers to less developed regions have gradually improved fiscal equalization and mitigated regional disparities since the 1994 tax-sharing reform, they have weakened the economic development incentives of recipient local governments. The book concludes with reform proposals for optimizing central–local fiscal relations.

This book will be of interest to scholars of the Chinese economy, public finance and development economics.