Fiscal Decentralization and Local Government Administrative Expenses——An Empirical Analysis Based on China Provincial Panel Data

Abstract

The government administrative expenses has the dual attributes: on the one hand,too much spending is harmful to economic growth,making local governments in a disadvantaged position in competition and doing harm to the promotion of officials,and goes against the macro-policy objectives of China Central Government at the same time;but it can improve the economic well-being of local government officials.Therefore,local governments face a dilemma on the issue of administrative expenses.This paper uses the panel data from China's 30 provinces(including autonomous regions and municipalities) from 1998-2006 to conduct empirical analysis and robustness test of the relationship between fiscal decentralization and administrative expenses.The main conclusions are as followings: In China's institutional environment,with the expansion of local government fiscal expenditure discretion,the overall effect is the increase of administrative expenses.There is a significant positive correlation between the number of administrative staff and the amount of administrative expenses.The level of regional economic development,resource endowments,and social structure has significant impact on local government administrative expenses.In the context of public finance reform,the other items of public expenditure(except for social security expenditure) have significant crowding out effect on administrative expenses.