Click here to get the PDF file of my little project in Spatial Pattern Analysis Workshop, UC, Santa Barbara. The tile is:
“China’s Provincial Fiscal Inequality: A Cost-standardized Approach”
A common way to measure local fiscal capacity in China is by per capita local expenditure (PCEXP). The measure, however, overlooks the fact that the average cost of public service delivery is drastically different across regions. Even after adjusting for residential living cost, I find significant and negative elasticity between provincial population density and PCEXP. This leads to the surprising observations that some of the highest PCEXP in China are observed in Tibet, Xinjiang, and Qinghai, etc (see another post in the blog). Thus it is misleading to interpret the dispersion of PCEXP as representing fiscal inequality across provinces.
In this little project I developed a cost-weighted measure of fiscal capacity based on regression evidence, and apply it to examine the change of fiscal inequality in China over the period 1984 and 2006 (see the figure below). I then estimate the determinants of the cost-standarized fiscal capacity with spatial-lag regressions. The most influential factors are the Prime industry ratio, Municipality, Minority area, and the spatial-lag. Per capita GDP does not have significant effect after other factors are controlled. Finally, I calculate the inequality contribution for each significant factor with the Morduch and Sicular (2002) approach.
