| Abstract | The measurement of fiscal decentralization has been one of main problems of empirical study on the fiscal decentralization. Based on the definition of fiscal decentralization from world bank, this paper describes fiscal decentralization from three dimensions, which is the allocation of taxation right, separation of revenue and expense as well as the dependence between centre government and local government, and then makes the first index reflecting the division of fiscal relationship between two levels governments-- Chinese fiscal decentralization index (CFDI). The result shows that CFDI presents a trend of decline from 50.39 in 1995 to 46.05 in 2011, which indicates the financial power of local governments have been taken back since the reform of taxation system in 1994. In the empirical analysis, through our dynamic panel model and GMM method, we find that there is a inverted "U" relationship between CFDI and economic growth significantly, which means when the CFDI is lower than 41.22, fiscal decentralization is good for economic growth, while when CFDI exceeds 41.22, further decentralization inhibits economic growth. At the same time, we also find there is a significant negative correlation with CFDI and the income gap, which means that the expansion of fiscal decentralization will improve the degree of income equality. |