Interregional transfers and the smoothing of provincial expenditure in China (original) (raw)

2007, China Economic Review

Fluctuations in regional government revenue cause spending on public services to vary, unless the central government stabilizes regional expenditure via the fiscal system. This paper estimates the amount of expenditure smoothing across provinces in China provided by interregional net transfers over the 1952-2001 period. The findings indicate that net transfers minimized the volatility of provincial expenditure by cushioning a very large fraction of province-specific revenue shocks. Rich provinces received a larger amount of expenditure smoothing than poor regions, especially during periods of fiscal decentralization. Extrabudgetary revenue weakened the stabilizing effect of net transfers. JEL classification: E6; H72; P35