Fiscal Decentralization,Composition of Local Public Expenditure and Regional Economic Growth in China:Panel Data Analysis over 1979-2006

This paper investigates the effect of fiscal expenditure structure on economic growth with a sample of 27 provinces in Mainland China during 1979-2006,focusing on the effect of the tax-sharing system reform in 1994. It is found that prior to the tax-sharing system reform expenditure on infrastructure construction and agriculture negatively impact regional economic growth while expense on culture,education,science and public health as well as expenditure on government public consumption bear positive effect on economic growth. It is concluded that fiscal decentralization distorts public expenditure structure heavily because of political centralization. On one hand,it strengthens the positive effect of expense on culture,education,science and public health,and agriculture significantly. On the other hand,it aggravates the negative impact of expenditure on infrastructure construction and administrative expenses.