Fiscal Decentralization and Economic Growth in China

We employ a province-level data set to assess the contribution of fiscal decentralization initiated in the 1980s to economic growth in China. Controlling for other concurrent reform measures, we find that fiscal decentralization has raised the growth rate of per capita GDP at the province level. This is consistent with the hypothesis that fiscal decentralization increases economic efficiency. In addition, we also find that the rural reform, non-state sector development, and capital accumulation are the key driving forces of the impressive growth in China over the past twenty or so years.

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