China's Fiscal Decentralization and Economic Growth

Abstract

With an analysis on the contribution of fiscal decentralization initiated in the 1980s to the economic growth in China, this paper argues that fiscal decentralization has raised the growth rate of real per capita GDP at the province level. To have a positive effect on economic growth, fiscal resources and decision-making powers should be decentralized to the lowest feasible level of the government. Besides, the rural reform, non-state sectors and capital accumulation are the key driving forces of the impressive growth in China in the past two decades or so.