Social Sciences in China (Chinese Edition)

No.10, 2019

A New Perspective for Understanding the Central-Local Fiscal Game—Evidence from Reforms in the Issuance and Repayment Modes of Municipal Bonds

(Abstract)

Lü Wei, Zhou Jiayin and Lu Yi

As socialism with Chinese characteristics enters a new era, it is imperative to promote high-quality development. At this new historical turn, it is no longer appropriate to explore the path of China’s future development in terms of local governments only. We have therefore conducted an empirical test of the process and effect of the central government’s top-level design through the difference-in-difference method. Our test explores the process of central-local fiscal gaming from the point of view of the central government, observing how central fiscal reform achieves its goal through top-level design. Reform of the issuance and repayment modes of municipal bonds is taken as a typical case. Our findings show that on the basis of top-level design and our observation and conclusions about local government behavior, the central government has made timely adjustments to its empowerment mode and ultimately facilitated realization of the goals of reform. This provides a new perspective for understanding the central-local fiscal game post-reform and opening up.