Authors
Yan Yan: Capital University of Economics and Business
He Canfei: Peking University
Liu Tao: Peking University
Yang Haoyan: Beijing University of Technology
Paper Title:
Regional fiscal disparities in Chinese cities: Revenue-expenditure perspectivePublished in
Applied Geography, August 2024
1. Introduction
Regional inequality has long been a key concern for scholars and policymakers. Since the reform and opening-up, China has achieved rapid economic growth, yet regional disparities have become increasingly prominent. After entering the New Normal stage of economic development, China’s economic growth rate gradually moderated, while inter-regional fiscal gaps kept widening. Excessive fiscal disparities directly hinder local governments from fulfilling their administrative functions and restrict residents’ access to public services. China is undergoing a transition from a development-oriented governance model to a welfare-oriented one. Policy goals such as targeted poverty alleviation, common prosperity and equalization of basic public services all rely on sound, sustainable fiscal support.
This study takes China, a country facing severe and uneven fiscal pressures, as its research object. It adopts the revenue-expenditure gap method to evaluate the fiscal performance of 284 prefecture-level and above cities in China for the years 2000, 2010 and 2020, and further analyses the evolution of regional fiscal disparities. The paper mainly addresses four research questions:
(1) How has the fiscal performance of prefecture-level and higher-tier Chinese cities evolved over the past two decades? Has it become more divergent or convergent?
(2) In what dimensions do regional fiscal disparities mainly manifest, and how has fiscal performance changed across these dimensions?
(3) What factors contribute to regional fiscal disparities?
(4) Are intergovernmental transfers effective in narrowing fiscal gaps across regions?
2. Research Methodology and Data Sources
(1) Research Methodology
This research aims to establish a standard framework for measuring local governments’ fiscal conditions and apply it to quantify fiscal disparities among China’s prefecture-level cities. Sound fiscal health indicates that local governments possess sufficient fiscal resources to deliver standard public services, which is jointly determined by fiscal revenue and expenditure. The revenue-expenditure gap method is the most widely adopted tool for evaluating local fiscal conditions. First formally proposed by Ladd and Yinger in 1989, this method measures a city’s fiscal standing by calculating the gap between its fiscal expenditure demand for providing standard public services and its capacity to raise fiscal revenue to cover such demands. By comparing a single city’s fiscal profile with the average level across all cities, the relative fiscal gap of the city can be calculated and used as an indicator of its fiscal health.
(2) Data Sources
Fiscal and socio-economic data are extracted from the China City Statistical Yearbooks. Population and demographic structural data come from China’s national population censuses of 2000, 2010 and 2000. Transfer payment data for 2000 are sourced from National Fiscal Statistics for Prefectural, County and Municipal Governments. Transfer payment data for 2010 and 2020 are obtained from open government websites or via official information disclosure applications submitted to local authorities.
3. Conclusions and Discussion
Over the past two decades, the fiscal performance of China’s prefecture-level cities has shown an overall divergent trend: regions with healthy fiscal conditions have continued to improve, while fiscally disadvantaged regions have grown worse off. Such divergence exists nationwide and prevails among cities across different geographic zones, administrative ranks and urbanization levels. Eastern cities consistently maintain sound fiscal positions; central and western cities face relatively weaker fiscal conditions, with central regions seeing gradual fiscal improvement over time, while cities in Northeast China suffer sustained fiscal deterioration.
Disparities in revenue-raising capacity constitute the primary driver of regional fiscal inequality, and the contribution of revenue gaps to overall fiscal divergence has grown larger over time. Further analysis reveals that inter-regional fiscal disparities are shaped by multiple factors including population migration, industrial structure, political institutions, socio-economic conditions and physical geography.
This paper also explores the role of intergovernmental transfers in mitigating regional fiscal gaps. Findings show that the equalizing effect of transfer payments has strengthened alongside institutional reforms of the transfer system. Nevertheless, fiscal disparities across Chinese cities continue to widen even after accounting for transfer allocations. A more balanced transfer payment framework is required to reverse the widening trend of inter-city fiscal gaps.
