Regional fiscal disparities in Chinese cities: Revenue-expenditure perspective

Abstract

This study takes China, which is going through severe and unbalanced fiscal pressure, as the research object, using the Need-Capacity Gap method to evaluate the fiscal condition of 284 Chinese regions at prefecture level and above in 2000, 2010, and 2020, and further analyzes the changes in the fiscal disparities. The fiscal disparities of Chinese prefectures have generally shown a differentiation trend in the past 20 years, which is manifested in the continuous optimization of the areas with good fiscal conditions and the deterioration of the areas with poor fiscal conditions. The differentiation of regional fiscal conditions not only exists at the national level, but is also prevalent between and within different regions, between and within prefectures of different administrative class, and between and within prefectures of different urbanization levels. Differences in revenue raising capacity are the main driver of fiscal divergence, and the contribution of revenues to fiscal disparities has been increasing over time. Finally, the study provides a discussion on the relationship between fiscal disparities and regional inequality and the role of transfers in reducing fiscal disparities.