The Local Benefit-Transfers Issue in China : Based on Game Analysis Between Central and Local Governments

In the process of China's reform, an underlying reason that arouses economic and political challenges is the local benefit-transfers issue. This paper frames the game between central and local governments of China to provide insightful policies for addressing the issue under the current political-economic mechanism. Empirical study on provincial panel data between 1995 and 2005 is then conducted to verify propositions of the general model and effects of parameters. Supporting evidence is found that (1) fiscal incentives promote social welfare while benefit-transfers impair it; (2) governmental competition aggravates the benefit-transfers issue while fiscal incentives alleviate it