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| Fiscal Autonomy, the Structure of Fiscal Revenue and Expenditure, and Total Factor Productivity: Evidence from 230 China's Cities |
| YU Yongze, WANG Yuelong, LI Qihang
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| School of International Business and Economics, Nanjing University of Finance and Economics;Research Center of Regulation and Competition, Jiangxi University of Finance and Economics;Economic Research Center, Shandong University of Finance and Economics |
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Abstract It is generally believed that fiscal autonomy gives local governments greater incentives to pursue economic development. However, the research literature on fiscal autonomy has focused on the relationship between local financial autonomy and public goods supply (Sharma and Hotchkiss, 2001), fiscal autonomy and public expenditure efficiency (Bartolini and Santolini, 2013), equalization of public services for local financial self-sufficiency, and transfer payments. The literature on the relationship between fiscal autonomy and economic efficiency is still inadequate.
This paper links fiscal autonomy with economic efficiency and reveals the relationship between local fiscal autonomy and technological progress under the theoretical framework of Chinese-style fiscal decentralization. The contributions of this research are twofold. (1) It reveals the relationship between fiscal autonomy and technological progress under the framework of Chinese-style decentralization, enriching the breadth and depth of fiscal decentralization theory research. (2) It uses a research sample based on municipal level data to provide a deeper understanding of the impact on China's transitional economy of the relationship between central and local governments, and between provincial and municipal governments under fiscal decentralization.
This paper tests the following hypothesis: higher local financial autonomy is related to a higher level of technological progress; however, in cases of diminishing marginal efficiency of economic fiscal expenditure and long-term lack of social fiscal expenditure, the impact of fiscal autonomy on technological progress decreases.
First, in the empirical study, this paper calculates the total factor productivity of 230 cities in the period 1999-2013 and tests the impact of urban financial autonomy on urban total factor productivity. To avoid the influence of causal endogeneity on the empirical results, this paper constructs the number of state-level poverty-stricken counties in cities and the fiscal revenue of the previous year as the instrumental variables for financial autonomy. The regression results of the instrumental variables show that urban financial autonomy has only insignificant influence on total factor productivity (TFP). However, urban financial autonomy has a significant impact on scale efficiency (SE) and technological progress (TP) in the composition of TFP, and this effect is still significant with the addition of various control variables.
Second, the phased results show that the impact of fiscal autonomy on SE and TP in the composition of total factor productivity has shown a declining trend, mainly as the coefficient becomes smaller and the significance is reduced. To a certain extent, this indicates that due to imbalances in fiscal expenditure, expenditure on non-productive public goods such as education, science and technology, the environment, and medical care has been squeezed, which has led to insufficient investment in technological progress for long-term economic growth; thus, the impact of fiscal autonomy on technological progress is waning.
Finally, to verify the impact of urban financial autonomy on total factor productivity, this paper examines the impact of urban financial autonomy on corporate total factor productivity. The regression results of enterprise total factor productivity calculated based on Chinese industrial enterprise data show that improved urban financial autonomy can significantly increase total factor productivity at the enterprise level.
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Received: 04 April 2018
Published: 10 February 2020
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