Social Indicators Research

, Volume 119, Issue 3, pp 1177–1194 | Cite as

Fiscal Decentralization and Life Satisfaction: Evidence from Urban China

  • Song Gao
  • Xiangyi MengEmail author
  • Li Zhang


The impact of government structure on citizen welfare remains an open question. This study uses a repeated cross-section data (China General Social Survey) of Chinese urban households to test the hypothesis that fiscal decentralization increases individual welfare. The data used were collected in 2003, 2005 and 2006 and covered most of the provinces in China. We construct two measures of fiscal decentralization: one is based on revenue and the other on expenditure. Then we apply ordered Probit regression to investigate the impact of decentralization on individual life satisfaction after controlling a rich set of individual characteristics and several important macroeconomic factors. We find that greater revenue decentralization increases life satisfaction, a finding that is quite robust across different specifications. We also find that revenue decentralization is more important to the underdeveloped western region, the private sector employees and homeowners. In terms of income distribution, both the rich and the poor gain from revenue decentralization.


Decentralization Life satisfaction Macroeconomics China 


  1. Akai, N., & Sakata, M. (2002). Fiscal decentralization contributes to economic growth: Evidence from state-level cross-section data for the United States. Journal of Urban Economics, 52(1), 93–108.CrossRefGoogle Scholar
  2. Alderman, H. (1998). Social assistance in Albania: Decentralization and targeted transfers. LSMS working paper no. 134. Washington, DC: World Bank.Google Scholar
  3. Alesina, A., Di Tella, R., & MacCulloch, R. (2004). Inequality and happiness: Are Europeans and Americans different? Journal of Public Economics, 88(9–10), 2009–2042.CrossRefGoogle Scholar
  4. Azfar, O., Gurgur, T., Kahkonen, S., Lanyi, A., & Meagher, P. (2000). Decentralization and governance: An empirical investigation of public service delivery in the Philippines. College Park: IRIS, University of Maryland.Google Scholar
  5. Bardhan, P., & Mookherjee, D. (2003). Poverty alleviation effort of West Bengal Panchayats. Economic and Political Weekly, 39(9), 965–974.Google Scholar
  6. Bjørnskov, C., Dreher, A., & Fischer, J. A. V. (2007). The bigger the better? Evidence of the effect of government size on life satisfaction around the world. Public Choice, 130(3), 267–292.CrossRefGoogle Scholar
  7. Bjørnskov, C., Dreher, A., & Fischer, J. A. V. (2008). On decentralization and life satisfaction. Economics Letters, 99(1), 147–151.CrossRefGoogle Scholar
  8. Brown, C., & Oates, W. E. (1987). Assistance for the poor in a federal system. Journal of Public Economics, 32(3), 307–330.CrossRefGoogle Scholar
  9. Cheung, C. K., & Leung, K. K. (2007). Enhancing life satisfaction by government accountability in China. Social Indicators Research, 82(3), 411–432.CrossRefGoogle Scholar
  10. Clark, A. E., Frijters, P., & Shields, M. A. (2008). Relative income, happiness and utility: An explanation for the Easterlin Paradox and other puzzles. Journal of Economic Literature, 46(1), 95–144.CrossRefGoogle Scholar
  11. Davoodi, H., & Zou, H. (1998). Fiscal decentralization and economic growth: A cross-country study. Journal of Urban Economics, 43(2), 244–257.CrossRefGoogle Scholar
  12. Di Tella, R., & MacCulloch, R. (2006). Some uses of happiness data in economics. Journal of Economic Perspectives, 20(1), 25–46.CrossRefGoogle Scholar
  13. Di Tella, R., MacCulloch, R., & Oswald, A. J. (2001). Preferences over inflation and unemployment: Evidence from surveys of Happiness. American Economic Review, 91(1), 335–341.CrossRefGoogle Scholar
  14. Di Tella, R., MacCulloch, R., & Oswald, A. J. (2003). The macroeconomics of happiness. The Review of Economics and Statistics, 85(4), 809–827.CrossRefGoogle Scholar
  15. Easterlin, R. A. (1974). Does economic growth improve the human lot? Some empirical evidence. In P. David & M. Reder (Eds.), Nations and households in economic growth: Essays in honour of Moses Abramovitz. New York, NY: Academic Press.Google Scholar
  16. Ebel, R. D., & Yilmaz, S. (2002). On the measurement and impact of fiscal decentralization. Policy Research Working Paper Series 2809. The World Bank.Google Scholar
  17. Enikolopov, R., & Zhuravskaya, E. (2007). Decentralization and political institutions. Journal of Public Economics, 91(11–12), 2261–2290.CrossRefGoogle Scholar
  18. Faguet, J. P. (2004). Does decentralization increase responsiveness to local needs? Evidence from Bolivia. Journal of Public Economics, 88(3–4), 867–893.CrossRefGoogle Scholar
  19. Ferrer-i-Carbonell, A., & Frijters, P. (2004). How important is methodology for the estimates of the determinants of Happiness. The Economic Journal, 114(497), 641–659.CrossRefGoogle Scholar
  20. Fisman, R., & Gatti, R. (2002). Decentralization and corruption: Evidence from U.S. federal transfer programs. Public Choice, 113(1–2), 25–35.CrossRefGoogle Scholar
  21. Frey, B., & Stutzer, A. (2000). Happiness, economy and institutions. The Economic Journal, 110(446), 918–938.CrossRefGoogle Scholar
  22. Frey, B., & Stutzer, A. (2002). What can economists learn from happiness research? Journal of Economic Literature, 40(2), 402–435.CrossRefGoogle Scholar
  23. Helliwell, J. F. (2006). Well-being, social capital, and public sector: What’s new? The Economic Journal, 116(510), C34–C45.CrossRefGoogle Scholar
  24. Huther, J., & Shah, A. (1998). Applying a simple measure of good governance to the debate on fiscal decentralization. Policy research working paper no. 1894. Washington, DC: World Bank.Google Scholar
  25. Jin, H., Qian, Y., & Weingast, B. (2005). Regional decentralization and fiscal incentives: Federalism, Chinese Style. Journal of Public Economics, 89(9–10), 1719–1742.CrossRefGoogle Scholar
  26. Khaleghian, P. (2003). Decentralization and public services: The case of immunization. Policy research working paper no. 2989. Washington, DC: World Bank.Google Scholar
  27. Knight, J., & Gunatilaka, R. (2011). Does economic growth raise happiness in China? Oxford Development Studies, 39(1), 1–24.CrossRefGoogle Scholar
  28. Lam, K. J., & Liu, P. W. (2013). Socio-economic inequalities in happiness in China and U.S. Social Indicators Research. doi: 10.1007/s11205-013-0283-1.
  29. Lin, J., & Liu, Z. (2000). Fiscal decentralization and economic growth in China. Economic Development and Cultural Change, 49(1), 1–22.CrossRefGoogle Scholar
  30. Liu, L. (2006). Quality of life as a social representation in China: A qualitative study. Social Indicators Research, 75(2), 217–240.CrossRefGoogle Scholar
  31. Martinez-Vazquez, J., & McNab, R. M. (2003). Fiscal decentralization and economic growth. World Development, 31(9), 1597–1616.CrossRefGoogle Scholar
  32. Meloche, J., Vaillancourt, F., & Yilmaz, S. (2004). Decentralization or fiscal autonomy? What does really matter? Effects on growth and public sector size in European transition countries. Policy research working paper no. 3254. World Bank.Google Scholar
  33. Musgrave, R. A. (1971). Economics of fiscal Federalism. Nebraska Journal of Economics and Business, 10(4), 3–13.Google Scholar
  34. Oakerson, R. J. (1999). Governing local public economies, creating the Civic Metropolis. Oakland, CA: ICS Press.Google Scholar
  35. Shek, D. T. L. (2010). Introduction: Quality of life of Chinese people in a changing world. Social Indicators Research, 95(3), 357–361.CrossRefGoogle Scholar
  36. Shelker, M. (2005). Fiscal decentralization: Efficiency vs. redistribution? An institutional feature to resolve the trade-off, paper prepared for Annual Meeting of the International Society of New Institutional Economics (ISNIE).Google Scholar
  37. Shu, X. L., & Zhu, Y. F. (2009). The quality of life in China. Social Indicators Research, 92(2), 191–225.CrossRefGoogle Scholar
  38. Smyth, R., Nielsen, I., & Zhai, Q. G. (2010). Personal well-being in urban China. Social Indicators Research, 95(2), 231–251.CrossRefGoogle Scholar
  39. Sun, F., & Xiao, J. J. (2012). Perceived social policy fairness and subjective wellbeing: Evidence from China. Social Indicators Research, 107(1), 171–186.CrossRefGoogle Scholar
  40. Thiessen, U. (2000). Fiscal federalism in western European and selected other countries: Centralization or decentralization? What is better for economic growth? DIW discussion paper no. 224. Berlin: DIW.Google Scholar
  41. Treisman, D. (2002). Decentralization and the quality of government, UCLA: manuscript, available at Accessed 30 Dec 2013.
  42. West, L., & Wong, C. (1995). Fiscal decentralization and growth regional disparities in rural China: Some evidence in the provision of social services. Oxford Review of Economic Policy, 11(4), 70–84.CrossRefGoogle Scholar
  43. Xie, D., Zou, H., & Davoodi, H. (1999). Fiscal decentralization and economic growth in the United States. Journal of Urban Economics, 45(2), 228–239.CrossRefGoogle Scholar
  44. Zhang, T., & Zou, H. (1997). Fiscal decentralization, the composition of public spending, and regional growth in India. CEMA working papers no. 521.
  45. Zhang, T., & Zou, H. (1998). Fiscal decentralization, public spending and economic growth in China. Journal of Public Economics, 67(2), 221–241.CrossRefGoogle Scholar
  46. Zodrow, G. R., & Mieszkowski, P. (1986). Pigou, Tiebout, property taxation, and the under provision of local public goods. Journal of Urban Economics, 19(3), 356–370.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.China Academy of Public Finance and Public PolicyCentral University of Finance and EconomicsBeijingChina

Personalised recommendations