Dynamic evaluation and determinants of China's interregional equalization of basic public services

Abstract

Despite the 30 years of reform and opening up that has led to China's rapid economic development, the gap of basic public services, such as basic education and medicine, among regions in China widened, which forced the Chinese government to put forward the strategy on Equalization of Basic Public Services (BPS) in 2005. Through econometric analysis, this paper analyzes the reasons why the regional equalization level of BPS in China has been decreasing. We find that the level of regional gaps of economic development, differences in fiscal decentralization, the degree of opening to the outside world and of marketization, and the level of urbanization are significantly positively correlated with the level of regional BPS; while regional disparity of financial capacity and governments' preferences are significantly negatively correlated with the level of regional BPS; but transfer payments from the central government do not play a role in promoting the equalization of BPS. It can be seen that in order to raise regional equalization of BPS in China, the gap of regional economic development should be controlled within reasonable ranges, normative fiscal decentralization established, and the system of transfer payments reformed with explicit equalization goals in mind. At the same time, the central government should reform the current rigid system of household registration management or internal passport system, known as hukou. To ensure the rational flow of population, and it should force local governments to improve the supply of BPS rather than simply relying on competition for regional economic growth. Copyright © 2013 Juraj Dobrila University of Pula, Department for Economics and Tourism "Dr. Mijo Mirković".