Fiscal Decentralization and Economic Growth in China—based on Empirical Study with Provincial Panel Data

Based on researches by Barro (1990) and Davoodi and Zou (1998), this paper constructs a model of the relationship between fiscal decentralization and economic growth. We empirically research the impact of fiscal decentralization on economic growth with provincial government data from 1980 to 2004 based on random effects regression method. We find that fiscal decentralization has promoted China economic growth in an overall manner, that this positive effect is more evident in East China region than in Middle and West China region. The authors hold that the difference of cross regional local government behaviors towards fiscal decentralization and the difference of public expenditure structure are important reasons for the difference of fiscal decentralization on economic growth.