Intra-provincial Fiscal Disparities and the Role of the Provincial Transfer System in China: A Case Study of Henan Province

Abstract

This study seeks to explore intra-provincial fiscal disparities at the county level in Henan province and the extent to which the undesirable fiscal inequalities can be traced to the provincial fiscal transfer system. By employing the extended two-step Gini coefficient decomposition techniques, this study finds that only general-purpose transfers have an equalization effect, while both tax rebates and specific-purpose transfers have anti-equalization effects. In addition, the size of the general-purpose transfers’ equalization effect is too limited to mitigate the overall anti-equalization effect of total transfers. It also finds that so-called equalization transfers have not shown stronger equalization effects than other general-purpose transfers; tax rebates’ anti-equalization effect is limited, but specific-purpose transfers’ antiequalization effect is significant due to its rapid growth during the study period of 2001-2011. The findings imply the important role of provincial policies in intra-provincial fiscal equalization in China.