Determinants of Expenditure Decentralization: Evidence from China

Abstract

This study is the first attempt to examine the determinants of expenditure decentralization at sub-provincial levels in China. The Chinese central government gives detailed guidelines to local governments on public finance, but, ironically, their expenditure assignment is far from being well-regulated. Differences in fiscal decentralization on the expenditure side are enormous among local governments. Employing a panel dataset of 1995-2006, we provide empirical evidence that transfer dependency negatively affects expenditure decentralization in Chinese local governments. It suggests that intermediate governments, i.e. provincial governments, may have “grabbed” central grants for self-interests.