Fiscal Intervention by Local Governments,Financial Development and Efficiency of Regional Capital Allocation

Using panel data for 30 provinces and municipalities in China for 1998-2007 and taking regional marginal investment productivity as the indicator of efficiency of regional capital allocation,this paper makes an empirical analysis of the relationship between financial development,fiscal intervention by local governments and efficiency of regional capital allocation.The results indicate that when the effect of fiscal intervention by local governments on efficiency of capital allocation is controlled,financial development is conducive to improvement in efficiency of capital allocation.Local governments significantly reduce efficiency of capital allocation through fiscal intervention.They also intervene in financial institutions to cover budget deficits,bringing about a massive negative effect on efficiency of capital allocation.