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

Stefan Brehm

World Development, 2013, vol. 46, issue C, 92-103

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 during 1995–2005 indicate that revenue and expenditure decentralization both promoted allocative efficiency. Yet, the impact of fiscal incentives decreases with rising income inequality among county governments.

Keywords: fiscal decentralization; economic efficiency; public spending; spatial dependence; China (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:46:y:2013:i:c:p:92-103

DOI: 10.1016/j.worlddev.2013.01.029

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