Abstract This study examines the distinct economic effects of administrative and fiscal decentralization, explores their interrelationship, and investigates the underlying mechanisms. Using China's county‐level decentralization reforms, the analysis shows that administrative decentralization promotes economic growth, particularly by advancing the secondary industry through reduced business costs and enhanced firm profitability. In contrast, fiscal decentralization, while driving local governments to raise firm debt and tax burdens, does not significantly boost economic growth on its own. Nevertheless, the two forms of decentralization are found to be complementary: when implemented jointly, they support industrial upgrading through more efficient resource allocation and help reduce regional growth disparities. Finally, in combination with a provincial analysis, this study suggests that an effective decentralization strategy involves simultaneously delegating both fiscal and administrative powers to the lowest levels of government.
Haizhen Jin (2025) studied this question.