Redistribution and Government Tactical Behaviour: An Analysis of Local Public Expenditure in China after the 1994 Tax Reform

During the last few decades significant changes have affected Chinese public finance. In 1994, a major tax reform was undertaken and central-local sharing arrangements were deeply modified; the evolutions of regional public expenditure in the years following the reform deserve to be analysed. The issue is relevant for two additional reasons. First, income inequality is becoming a relevant issue and it is therefore important to understand whether the Chinese government is pursuing some kind of redistribution policy. Second, an analysis of the local expenditure dynamics might provide some important information concerning the objectives and the behaviour of the Chinese government. The article considers a set of structural, political and socio-economic variables to analyse the determinants of local public expenditure in 30 Chinese regions over the period 1995-2007. The results reveal that redistribution seems not to be a priority for the Chinese government: expenditure is higher in richer and more internationally open regions, and the only redistribution evidence that emerges is related to urban-rural disparities.