TY  - JOUR
AU  - Gordon, Roger H
AU  - Li, Wei
TI  - Provincial and Local Governments in China:  Fiscal Institutions and Government Behavior
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16694
PY  - 2011
Y2  - January 2011
DO  - 10.3386/w16694
UR  - http://www.nber.org/papers/w16694
L1  - http://www.nber.org/papers/w16694.pdf
N1  - Author contact info:
Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu

Wei Li
1 East Chang An Avenue
Oriental Plaza, Tower E1/10F
CKGSB
Beijing, China
100738
China
Tel: +86-10-85188858
E-Mail: wli@ckgsb.edu.cn
M1  - published as Roger H. Gordon, Wei Li. "Provincial and Local Governments in China: Fiscal Institutions and Government Behavior," in Joseph P. H. Fan and Randall Morck, editors, "Capitalizing China" University of Chicago Press (2013)

M3  - presented at "Capitalizing China Conference", December 15-16, 2009
AB  - What are the incentives faced by local officials in China?  Without democratic institutions, there is no mechanism for local residents to exercise "voice".  Given the hukou registration system, local residents have little opportunity to threaten "exit" if they are unhappy with local taxes and spending.   This paper explores an alternative source of incentives, starting from the premise that local officials aim to maximize the jurisdiction's fiscal residual (profits), equal to local tax revenue minus expenditures on public services.  In a Tiebout setting with mobile households, this objective should lead to efficient provision.  What happens, though, if firms and economic activity but not people are mobile?   The paper examines the incentives faced by local Chinese officials in this context, and argues that the forecasted behavior helps to explain both the successes and the problems arising from local government activity in China.
ER  -