Transfer-based decentralisation, economic growth and spatial inequality: Evidence from Chinaâ€™s 2002â€“2003 tax sharing reform
Ran Tao and
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Fan Fan: Renmin University of China, China
Ming Li: University of Pennsylvania, USA
Ran Tao: Renman University of China, China
Dali Yang: The University of Chicago, USA
Urban Studies, 2020, vol. 57, issue 4, 806-826
China has adopted a transfer-based fiscal decentralisation scheme since the mid-1990s. In the 1994 tax sharing reform, the central government significantly raised its share of government revenue vis-Ã -vis local governments by taking most of the newly created value-added tax on manufacturing. One aim for the adoption of the transfer-based fiscal scheme was to channel more funds to less developed regions and rural areas, and to alleviate growing interregional inequality and urbanâ€“rural income disparity. In 2002 and 2003 the Chinese central government further grabbed 50% and 60%, respectively, of the income taxes previously assigned only to local governments while providing more fiscal transfers to the countryâ€™s poor regions and the countryside. Utilising the 2002â€“2003 change in Chinaâ€™s centralâ€“local tax sharing regime as an exogenous policy shock, we employ a Simulated Instrumental Variable approach to causally evaluate the effects of the policy shock on growth, interregional inequality and urbanâ€“rural disparity. We find the lower local tax share dis-incentivised local governments and led to lower growth. Although higher central transfers helped to reduce interregional inequalities in per capita GDP and per capita income, the equalising effects were only present for urban incomes. We argue that transfer-based decentralisation without bottom-up accountability was detrimental to economic growth and had limited impact on income redistribution.
Keywords: economic growth; income inequality; local accountability; transfer-based decentralisation; ç» æµŽå¢žé•¿; æ”¶å…¥ä¸ å¹³ç‰; åœ°æ–¹é—®è´£åˆ¶; åŸºäºŽè½¬ç§»çš„è´¢æ”¿åˆ†æ ƒ (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:urbstu:v:57:y:2020:i:4:p:806-826
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