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Fiscal structures and regional economic growth: evidence from China’s fiscal contract system

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  • Chien-Hsun Chen
  • Hsiu-ling Wu

    (Chung-Hua Institution for Economic Research, Taiwan
    Tamkang University, Taiwan)

Abstract

This paper sets out to examine the impact of the fiscal contract system on economic growth in China’s different provinces. Empirical testing is conducted using the error components model and pooled cross-section (provinces) and time-series data from 1989 to 1993. The empirical results for the whole sample show an inclination towards convergence of regional economic growth, with any increase in regional tax revenue hindering investment and employment due to excessive taxation, which is unfavorable to economic growth. The same finding applies to extra-budgetary revenue. Ranked by their overall strength, the provinces are divided into economically advanced and backward groups for empirical testing. Comparison of the empirical results using a sample of the top and bottom fifteen, in terms of their overall strength, reveals that the economic growth of the top fifteen provinces tends to be divergent. More fiscal revenue and extra-budgetary funds are unfavorable to economic growth and the results are the same for all provinces; the result also remains the same when fiscal revenue is itemized. The difference between the two lies in fiscal expenditure.

Suggested Citation

  • Chien-Hsun Chen & Hsiu-ling Wu, 2008. "Fiscal structures and regional economic growth: evidence from China’s fiscal contract system," Journal of Developing Areas, Tennessee State University, College of Business, vol. 41(2), pages 119-135, January-M.
    • Handle: RePEc:jda:journl:vol.41:year:2008:issue2:pp:119-135
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    More about this item

    Keywords

    China’s Fiscal Contract System; Fiscal Structures; Government Budget Constraint; Regional Economic Growth;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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