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Need, Bargaining, or Efficiency Driven? Explaining Central-Local Fiscal Transfers in Post-Reform China
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Need, Bargaining, or Efficiency Driven?
Explaining Central-Local Fiscal Transfers in Post-Reform China
Jing Vivian Zhan
Department of Political Science
University of California, Los Angeles
## email not listed ##
Prepared for delivery at the 2006 Annual Meeting of the American Political Science Association, August 30-September 3, 2006. Copyright by the American Political Science Association.
Abstract
An examination of China’s central-provincial fiscal transfers in the post-reform era
shows a pattern of wild cross-regional variations: some provinces submitted huge amounts of revenue to the center; while other provinces received considerable central subsidies. Why did some provinces enjoy more fiscal power than others? The need-based and bargaining-based theories have provided different hypotheses to explain such cross-regional variations. But in this paper I argue that both theories fall short of telling the whole story about central-local fiscal transfers in China. An alternative explanation is that the Chinese central government tended to make larger fiscal transfers to localities that used their revenues more efficiently and achieved higher economic development level. In this way, fiscal transfer essentially functioned as an investment: By transferring more fiscal revenues to localities where they could be efficiently used to yield high returns, the center could harvest more fiscal revenue in the future.
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| | Authors: Zhan, J. Vivian. |
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Need, Bargaining, or Efficiency Driven?
Explaining Central-Local Fiscal Transfers in Post-Reform China
Jing Vivian Zhan
Department of Political Science
University of California, Los Angeles
## email not listed ##
Prepared for delivery at the 2006 Annual Meeting of the American Political Science Association,
August 30-September 3, 2006. Copyright by the American Political Science Association.
Abstract
An examination of China’s central-provincial fiscal transfers in the post-reform era
shows a pattern of wild cross-regional variations: some provinces submitted huge amounts of
revenue to the center; while other provinces received considerable central subsidies. Why did
some provinces enjoy more fiscal power than others? The need-based and bargaining-based
theories have provided different hypotheses to explain such cross-regional variations. But in this
paper I argue that both theories fall short of telling the whole story about central-local fiscal
transfers in China. An alternative explanation is that the Chinese central government tended to
make larger fiscal transfers to localities that used their revenues more efficiently and achieved
higher economic development level. In this way, fiscal transfer essentially functioned as an
investment: By transferring more fiscal revenues to localities where they could be efficiently
used to yield high returns, the center could harvest more fiscal revenue in the future.
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