Fiscal Decentralization, Corruption and Urban-Rural Income Inequality: Evidence from China

Abstract

This paper follows fiscal federalism that a higher degree of fiscal decentralization is always associated with lower corruption and income inequality. There exists a stronger dynamic relationship among fiscal decentralization, corruption and income inequality in developing countries. Based on the panel dataset from 1999 to 2012, this research is focusing on China, showing that it does not exist a simple linear relationship among fiscal decentralization, corruption and urban-rural income inequality, instead, the relationship between fiscal decentralization and urban-rural income inequality is more in line with a specific "U" shape. While the effect of corruption on urban-rural income inequality, it can be gradually weakened as the reform of fiscal decentralization which expands the existed researches made by Mah (2013) and Lessmann (2010).