Fiscal Decentralization and Horizontal Fiscal Inequality in China

If fiscal decentralization reform and unbalanced economic growth increase horizontal fiscal inequality across China, this may deteriorate public services in underfunded regions and slow down economic growth and urbanization in the long run. Our study investigated the inequality of fiscal expenditures in metropolitan areas in China during the period 1999-2008. Although fiscal inequality increased before 2001, we found that a decreasing pattern was evident afterward. We also found that while revenue inequality was highly correlated with observed disparities in expenditures, inequality of transfers from central and provincial governments also contributed, although to a smaller extent. Guangdong, one of the most developed provinces in China, surprisingly had the highest level of intraprovincial fiscal inequality.