Grassroots-level government’s financial capability is crucial to the performance of financial functions of the whole country. How to adjust the intergovernmental vertical fiscal relations in order to improve grassroots-level government’s finance situation is important for accelerating the establishment of a modern fiscal system. In recent years, Province-Directly-Governing-County (PGC) fiscal reform has been
an important attempt to straighten out vertical fiscal relations between governments, and thus has made it possible for studying the effects of vertical fiscal relations reform on grassroots-level government’s finance based on quasi-natural experimental analysis. Therefore, this article empirically analyzes the PGC fiscal reform based on nationwide county-level data applying Propensity Score Matching with Difference-in-Difference Method (PSM-DID), in order to investigate the effect of the reform on county governments’ disposable revenue and identify the influence path. The results indicate that PGC fiscal reform has a significant effect on promoting fiscal disposable revenue of county governments. Furthermore, we find that the reform increased upper-government transfer payment more than county-level own revenue, which manifests the reform increase county governments’ fiscal disposable revenue by means of restraining prefecture-level cities’ from grabbing county-level transfer.
Keywords: intergovernmental vertical fiscal relations reform, grassroots-level government, finance guarantee
China Finance and Economic Review
Volume 8 Number 2 Summer 2019.P3