Intra‐provincial fiscal decentralization, relative wealth, and healthcare efficiency: Empirical evidence from China
| Published date | 01 September 2023 |
| Author | Shuo Sun,Rhys Andrews |
| Date | 01 September 2023 |
| DOI | http://doi.org/10.1111/padm.12832 |
ORIGINAL ARTICLE
Intra-provincial fiscal decentralization, relative
wealth, and healthcare efficiency: Empirical
evidence from China
Shuo Sun | Rhys Andrews
Cardiff Business School, Cardiff University,
Cardiff, UK
Correspondence
Rhys Andrews, Cardiff Business School,
Cardiff University, Cardiff, CF10 3EU,
Wales, UK.
Email: andrewsr4@cardiff.ac.uk
Abstract
Decentralizing fiscal power to locally elected governments
is often regarded as beneficial for public service efficiency.
However, questions remain about whether decentralizing
fiscal responsibilities work well in countries lacking political
decentralization. In China, fiscal decentralization has signifi-
cantly strengthened the role of local governments in the
provision of healthcare services, but evidence of its effi-
ciency effects is scarce. To cast light on this issue, this study
investigates the relationship between intra-provincial fiscal
decentralization and the productive efficiency of healthcare
services in China. Analysis of panel data for 2006–2017
suggests that expenditure and revenue decentralization
from provincial to sub-provincial governments significantly
improves healthcare efficiency. Further analysis suggests
that the positive impact of healthcare expenditure decen-
tralization on healthcare efficiency may be stronger in
wealthier provinces. These findings have important theoret-
ical and practical implications.
1|INTRODUCTION
During the past few decades, political, and administrative decentralization has spread around the world, especially
policies aimed at decentralizing governments' spending and tax responsibilities (Rodríguez-Pose & Gill, 2003). Prac-
tices of fiscal decentralization (FD) first initiated in western countries with high levels of political decentralization,
such as Italy, Spain, and Australia in the 1970s (Stegarescu, 2005), have been promoted by international institutions
such as the World Bank and IMF (OECD, 2016; World Bank, 1999). As a result, FD has spread to Latin America, East-
ern Europe, and emerging countries, such as China, India, and Indonesia, where political decentralization may be
Received: 11 February 2021 Revised: 12 January 2022 Accepted: 17 January 2022
DOI: 10.1111/padm.12832
Public Admin. 2023;101:973–992. wileyonlinelibrary.com/journal/padm © 2022 John Wiley & Sons Ltd. 973
weaker or even absent. In many of those countries, FD in the healthcare sector is considered a central issue in their
decentralization reforms (Mosca, 2006). However, surprisingly little is known about whether such reforms promote
healthcare efficiency, even though controlling healthcare costs is a key policy aim for many countries (Plümper &
Neumayer, 2013). More specifically, few studies investigate the relationship between FD and healthcare efficiency
in China, and whether this relationship is influenced by relative wealth.
According to fiscal federalism theories, FD can motivate local governments to utilize the information advantages
that they hold over higher levels of government to provide public services more efficiently (Oates, 1999; Qian &
Weingast, 1997). Moreover, because local accountability is stronger in a decentralized system, stricter fiscal disci-
pline and reduced rent-seeking behaviors are assumed (Seabright, 1996). Critics of FD, however, claim it leads to dis-
economies of scale and reduces productive efficiency, due to the smaller quantity of localized demands, local
governments' weaker economic and political bargaining power, and poorer control of public service externalities
(Prud'homme, 1995; Treisman, 2007). Despite the vigor of these theoretical debates, comparatively little research
evaluates the impact of FD on healthcare efficiency (e.g., Arends, 2017; Sow & Razafimahefa, 2015). Critically, this
topic is rarely addressed in China, one of the most fiscally decentralized countries in the world (Boadway &
Shah, 2009), but one in which political decentralization is largely absent.
Since the 1980s, much of the responsibility for funding and providing public services in China has been trans-
ferred from the central government to provincial governments, which have considerable discretion over the inter-
governmental fiscal arrangements within their own provinces
1
(Niu, 2013). As a result, local governments now take a
leading role in providing public services, such as healthcare and compulsory education, with more than 90% of
expenditures on these services being undertaken by sub-national governments (National Bureau of Statistics, 2019).
There is a growing literature examining the determinants and consequences of FD at the provincial and sub-
provincial level in China. The determinants literature indicates that transfer dependency affects levels of expenditure
decentralization within provinces (Wu & Wang, 2013). Studies of the consequences of FD suggest it can increase
inequality (Liu et al., 2017a) and impact other social and economic outcomes (e.g., Wu, 2019; Wu et al., 2019),
including public health (Jin & Sun, 2011; Uchimura & Jütting, 2009), and healthcare service quality (Huang
et al., 2017). However, although Chinese language studies suggest that decentralization of fiscal responsibilities from
central to provincial governments improves healthcare efficiency (Lu & Tian, 2013; Zhang, 2013), little is known
about the impact of intra-provincial FD on healthcare efficiency within provinces or whether wealth makes a differ-
ence. To generate knowledge on the FD-healthcare efficiency relationship in a context in which political decentrali-
zation is lacking, this study analyses intra-provincial FD, relative wealth, and healthcare efficiency in China for the
period 2006–2017.
2|FISCAL DECENTRALIZATION AND HEALTHCARE EFFICIENCY
Based on the assumption that bringing government closer to the governed enhances accountability (Faguet, 2014),
decentralization of political, fiscal, and administrative responsibilities from national to subnational governments has
become popular across the globe (Schneider, 2003) especially among developing countries (Rondinelli et al., 1983).
Within the decentralization literature, increasing attention is being paid to FD, defined as“how much central govern-
ments cede fiscal impact to noncentral government entities”(Schneider, 2003, p. 33). Importantly, FD often implies
the transfer of considerable administrative powers to lower levels of government, but need not entail political decen-
tralization. In China, the sheer extent of this combination of fiscal and administrative decentralization forms the basis
for what is termed “de facto federalism”in the country (Zheng, 2007), which provides a distinctive counterpart to fis-
cal federalism perspectives that emphasize political decentralization.
First-generation theories of fiscal federalism claimed that decentralizing fiscal power enhances public service
efficiency because governments closer to local residents understand their preferences for public services and how
those services can be most efficiently produced (Oates, 1999). From the 1980s, second-generation theories of fiscal
974 SUN AND ANDREWS
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting