Can e-government reduce local governments' financial deficits?——Analysis based on county-level data from China

Abstract

Research has shown that the centralization of financial power in unitary states is not conducive to local governments' promotion of e-government, resulting in the expansion of local fiscal deficits. The fundamental reason for this problem lies in the contradiction between the information disclosure required for effective e-government and the information concentration characteristic of unitary countries. To identify the impact of e-government on fiscal deficits in this context, we take two e-government pilot projects in China as quasi-natural experiments and conduct difference-in-differences analysis of county-level data from 1997 to 2018. Through a common trend test, a placebo test, a lagged outcome variable design and the difference-in-differences with propensity score matching method, we validate our finding that e-government can effectively reduce the fiscal deficit of local governments. This function is mainly realized through the application of media tools and expansion of the scale of local enterprises. However, the impact of e-government on fiscal deficit differs significantly between regions with different levels of economic development. The effect is more obvious in regions with a poorer economic foundation. Our findings indicate the importance of e-government construction in unitary developing countries.