Since the 1990s, China has pushed forward the province-managing-county (PMC) reform in some provinces as an experiment of fiscal decentralization. The reform provides a good opportunity to examine the impact of fiscal decentralization on fiscal behaviors of local governments in China. Using a data set of 108 counties in Henan Province during 1999-2008, we employ a difference-in-differences approach to investigate how the PMC reform affects local public education spending. The results show that counties given additional fiscal autonomy tend to spend a lower share of their annual expenditures on public education than other counties do. The findings suggest that fiscal decentralization does not necessarily make local governments more responsive to long-term benefits for local residents.
Bibliographical noteFunding Information:
Part of this research was supported by the Fundamental Research Funds for the Central Universities and the Research Funds of Renmin University of China (11XNL009). The authors thank Yuan He (now a graduate student in Guanghua Management School, Peking University) for her research assistance in the early stage of this project. The comments from the editor and anonymous referees are also highly appreciated.