Fiscal Decentralization, Local Governments′ Behavior and Regional Financial Development

China′s decentralization reform has effectively promoted the economic growth. But with the decentralization reform, in order to support the state-owned enterprises and ease the increasing fiscal pressure, local governments intervene on the financial system for credit resources, which hampers the efficiency of financial resources. Because of the differences in the state-owned enterprises′ share and the fiscal pressures, the strength of intervention on the financial system is different in various regions. As a result, regional differences of financial development are formed. By using inter-provincial panel data from 1985 to 2004, this paper gives empirical analysis to support the views above. This study indicates that in order to make financial institutions return to performing the financial function and make financial system play a better role in economic growth, with the state-owned enterprises reform and the fiscal system reform, local governments should simultaneously clarify their powers and responsibilities, increase their service functions, and reduce their intervention on resources allocation.