Fiscal decentralization, urban-rural income gap, and tourism

Abstract

The reform of China’s tax-sharing system in 1994 has not only had a profound heterogeneous impact on the control level of fiscal resources by local government but also might exert a negative effect on the sustainable development of tourism. Based on this hypothesis, this paper uses 1993–2018 data from 31 Chinese provinces to examine the dynamic relationship between China’s fiscal decentralization, income gap, urbanization, and tourism growth using a panel co-integration model. Our results show that there is a stable co-integration relationship between fiscal decentralization, income gap, and tourism growth. In general, the impact of fiscal decentralization and income gap on tourism development varies across regions. However, in most provinces, urbanization helps the development of tourism. Urbanization and fiscal decentralization also help reduce the income gap. This shows that the inter-regional government competition promotes not only the growth of tourism but also income equality. To achieve the sustainable development of tourism, China should not only take the advantage of local governments’ incentives for economic growth but also handle the income gap problem considering local conditions.