Association for Public Policy Analysis & Management

Fiscal federalism theory implies that local government always provides public goods and serves more efficiently than central government (Jin, Qian, & Weingast, 2005), due to the distribution of local knowledge (Hayek, 1945) and foot voting mechanism (Tiebout, 1956). However, in China, central and provincial government are isomorphic, which means they are both responsible for the public goods and service provision. Moreover, some studies indicate that it is central government instead of local ones who takes larger duties. Therefore, the fiscal federalism prediction is weak in explaining the mode of public goods provision in China. To some degree, fiscal federalism theory ignores the governments’ provision willingness. According to Olsen’s theory, the encompassing interests and narrow interests are key influential factors of government activity (Olsen, 1993). In China, a centralized authoritarian country, local government shows the tendency of short-sight and opportunism because of promotion tournament and tenure system (Zhou, 2007), while Chinese central government has greater encompassing interests because central government does not face the risk of party alternation. So it can be inferred that central government has stronger willingness to provide public goods and service.

This study aims to examine the differences in willingness of providing public goods between central and local governments, and to explore the possible causes of these differences. This research focuses on education field, which is a typical public goods, and constructs education expenditure elasticity of government revenue as indicator of governments’ willingness. Using the Chinese official statistical data, a T-test shows that central and local governments have significantly different degrees of willingness in providing education goods and services, specifically, the education expenditure elasticity of government revenue is significantly less than 1, while the education expenditure elasticity of government revenue is significantly greater than 1. These results indicate that education is necessity for local government, which means that education goods provision merely needs to meet the minimum requirements, while for central government education is luxury, which means the more the better. Then, a set of panel data regressions are conducted to figure out the dominators of central and local governments’ education expenditure elasticity of government revenue. The result of regression model shows that promotion possibility has negative influence on education provision willingness and the rest of the terms of the office has positive influence.