This paper reveals the effect of Chinese-style fiscal decentralization on regional total factor productivity (TFP), i.e., whether it leads to a race to the bottom or a race to the top. Theoretical analysis shows that Chinese-style fiscal decentralizations affects technological progress by changing the conditions of resource allocation. The empirical results show that Chinese-style fiscal decentralization has significantly improved the level of TFP in China, but it also generates the problems of factor mismatch and distortion of fiscal expenditure structure, and cause the distortion of factor market to a certain extent, which is not conducive to technological progress. Based on further observation of the internal composition of TFP, it is concluded that fiscal decentralization has caused technological progress (TP) and technical efficiency (TE) to show a more obvious race to the top, but the race to the top of TFP is weakening.
Keywords: Chinese-style fiscal decentralization, total factor productivity (TFP), race to the bottom, race to the top
China Finance and Economic Review
Volume 7 Number 4 Winter 2018.P27