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Intergovernmental Transfer, Provision of Public Goods and the Expansion of Government’s Size
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TitleIntergovernmental Transfer, Provision of Public Goods and the Expansion of Government’s Size  
AuthorFan Ziying;Zhang Jun  
OrganizationSchool of Economics, Huazhong University of Science and Technology; China Center for Economic Studies, Fudan University 
Key WordsIntergovernmental Transfer; Public Goods; Government’s Size; Factor Market Reform 
AbstractLocal governments increase investment on infrastructure to compete for the capital inflows, and neglect the provision of public goods, under the framework of fiscal decentralization. We establish a theoretical model using the Tiebout mechanism, the model shows that matching grants/transfer is the best option for the central government to solve under-provision of public goods when the factor mobility is limited in the case, the transfer can encourage local governments to increase local public goods by sharing the investment costs between central and local governments, but the transfer would indirectly make the size of local government expand. We use a provincial panel data from 1995-2004 to testify the above hypothesis, not only the spending of local governments increased with the matching grants, but also the number of bureaucrats increased, which aggravates the future financial burden.  
Serial NumberWP13 
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