FROM BLIND PURSUIT OF GROWTH TO BALANCED DEVELOPMENT?: An Analysis of the Political Logic of Fiscal Intergovernmental Transfers in China 1998 - 2003

Abstract: This thesis examines the underlying logic of the allocation of fiscal intergovernmental transfers in China and analyzes the changes in allocation policy over time. A theory of the determinants of central-provincial net fiscal transfers is developed and tested using a unique panel data set on Chinese intergovernmental transfers. Evidence is found that the Chinese fiscal allocation policy changed significantly between 1998 and 2003. Whereas the pattern of allocation of both total net fiscal transfers and discretionary net fiscal transfers favored rich provinces in 1998, the allocation became less regressive over time and some evidence even suggests that the allocation of discretionary net fiscal transfers became slightly equalizing in 2003. Over the same time period, the central policy-makers’ concern for social stability increased, as several indicators of social unrest gained influence over the allocation of intergovernmental transfers in 2000 and 2003. Furthermore, the evidence suggests that the net fiscal allocation was characterized by soft budget constraints in 2000 and 2003.