Efficient Scale of Local Government in China: Quantile Regression Approach to County-Level Data

We investigate the effects of urban and rural populations and area sizes on the expenditures of the prefecture-level local government. We found the following three results. The first relates to the expenditure for urban populations. At around 220,000 people, per capita local government expenditure is minimized in our simulation. The second is that the expenditure for rural populations is proportional to the population size. The third finding is that the expenditure in accordance with the areas is also proportional to the area size. This cost structure is the reason why Chinafs recent rapid urbanization increases prefectural governmentfs fiscal distress.