Fiscal Decentralization and Regional Financial Efficiency: An Empirical Analysis of Spatial Durbin Model

Abstract

Based on panel data covering the period from 2003 to 2012 in China’s 281 prefecture-level cities, we use superefficiency SBM model to measure regional financial efficiency and empirically test the spatial effects of fiscal decentralization on regional financial efficiency with SDM. The estimated results indicate that there exist significant spatial spillover effects among regional financial efficiency with the features of time inertia and spatial dependence. The positive promoting effect of fiscal decentralization on financial efficiency in local region depends on the symmetry between fiscal expenditure decentralization and revenue decentralization. Additionally, there exists inconsistency in the spatial effects of fiscal expenditure decentralization and revenue decentralization on financial efficiency in neighboring regions. The negative effect of fiscal revenue decentralization on financial efficiency in neighboring regions is more significant than that of fiscal expenditure decentralization.