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The Impact of Fiscal Inequality on Economic Growth: Evidence from Shifts in China's Fiscal System

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  • Jiakai Zhang

Abstract

This paper examines how fiscal inequality affects regional economic growth in China through two fiscal systems using an event-study approach. The "event" is the 1994 taxsharing reform that transitioned from the Fiscal Responsibility System (1987-1993) to the Tax Sharing System (1994-present). It presents three primary findings: Firstly, fiscal inequality positively impacts economic growth before 1994, but the effects become negative, albeit close to zero, thereafter. Secondly, there is no significant economic growth gap between "rich" and "poor" provinces before 1994; however, this gap widens post-1994. Finally, the use of extra-budgetary funds does not mitigate the economic growth gap.

Suggested Citation

  • Jiakai Zhang, 2024. "The Impact of Fiscal Inequality on Economic Growth: Evidence from Shifts in China's Fiscal System," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 80(4), pages 412-438.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2024-0015
    DOI: 10.1628/fa-2024-0015
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    More about this item

    Keywords

    fiscal inequality; economic growth; Chinese fiscal system; extra-budgetary fund;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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