A study of market segmentation, government competition, and public service efficiency in China: Based on a semi-parametric spatial lag model.

Abstract

Despite significant growth in fiscal expenditure, the overall level of public services in China remains inadequate. One approach to improving government public service efficiency from the perspective of management psychology is to strengthen government competition. However, only a few studies have explored the improvement of public service efficiency through government competition, with even fewer addressing the phenomena of market segmentation and spatial effects that accompany the process of government competition. This paper aims to fill this research gap by examining the effects of government competition and market segmentation on public service efficiency, as well as their spatial disparities. We initially employs the DEA method to assess the efficiency of public services based on inputs and outputs, and examines its spatial variations. Subsequently, a semi-parametric spatial lag panel model is utilized to validate the effects of market segmentation and government competition on public service efficiency. Our findings indicate that inter-provincial market segmentation leads to a decline in public service efficiency. Moreover, the influence of horizontal competition between local governments on public service efficiency varies depending on the degree of positive and negative effects in their competition dynamics. The impact of vertical competition between central and local governments on public service efficiency is influenced by the degree of fiscal decentralization. When the level of fiscal decentralization is below 0.808, vertical competition between central and local governments has a promoting effect on public service efficiency. However, when the degree of fiscal decentralization exceeds 0.08, this promoting effect weakens and gradually transforms into a negative influence. The insights and evidence provided by this study offer valuable guidance for for effectively reshaping the fiscal relations between the central and local governments in China and improving public service efficiency in the context of a new round of fiscal and tax system reforms.