The stabilizer effect of fiscal decentralization: Evidence from regional economic resilience in Chinese cities

This study examines the impact of fiscal decentralization on urban economic resilience. Using panel data for Chinese cities from 2010 to 2023, we construct a multidimensional index of economic resilience and measure fiscal decentralization from both revenue and expenditure perspectives. The results show that fiscal decentralization significantly enhances urban economic resilience, suggesting that greater local fiscal autonomy improves cities’ capacity to withstand shocks, restore economic activity, and undertake structural adjustment. Fiscal decentralization strengthens urban economic resilience mainly by promoting industrial upgrading, improving high-quality technological innovation, and alleviating labor misallocation. Financial agglomeration further reinforces the positive effect of fiscal decentralization on economic resilience, indicating that the stabilizer effect of fiscal decentralization depends on the local foundation of financial resources. Meanwhile, fiscal decentralization also increases local government debt, implying that resilience enhancement may be accompanied by certain fiscal risks. In addition, fiscal decentralization exhibits a U-shaped relationship with urban economic resilience, suggesting that its positive effect can be fully realized only under certain institutional conditions and governance capacities. This study reveals the dual role of fiscal decentralization as both a stabilizing institutional arrangement and a potential source of debt risk, providing empirical evidence for optimizing central-local fiscal relations and strengthening urban economic resilience.