An Analysis on Equalization Effect of Fiscal Transfer Payment: Based on the Provincial Panel Data during 2000-2009 in China

The equalization of basic public service is an inherent requirement to implement the scientific development concept and build the harmonious society. In the situation of all levels of government having different fiscal capacity, fiscal transfer payment system is an important way to achieve the equalization of public service. The paper studies the reaction function which is built on local basic public service in response to large-scale transfers, and is tested with provincial panel data,. The conclusion is showed that: (1) China's fiscal transfer payment does help achieve the equalization of public service, and this continued to strengthen the effect of equalization; (2) There is a positive correlation between transfer effects of the equalization of public service and transfer payment; (3) Economic development, local financial variables can effectively promote equalization of basic public service. In the end, existence of the flypaper effect is summarized, and some policy recommendations are proposed which includes that gradually reducing the tax return, construction of horizontal transfer payment system, and increasing of general transfer payment.