An Empirical Study on the Relationship between Fiscal Autonomy and Economic Growth - The Case of China

There is a close relationship between the revenue and expenditure assignment system and economic growth. Based on a literature review of the relationship between fiscal autonomy and economic growth, which shows that scholars have not made a consensus conclusion, the paper will introduce the historical process of fiscal decentralization in China since 1978, particularly as related to the establishment of the Tax Sharing System (TSS) in 1994. By studying the dataset of 30 provincial units, I find that the degree of fiscal autonomy remains at a relatively lower level after the TSS reform. There are significant variations in the level of fiscal autonomy across regions and provinces. Through the pooled OLS regression analysis, it is found that a higher level of fiscal autonomy is positively related to economic growth.