Fiscal Decentralization

Abstract

The research of this thesis focuses on the nexus of vulnerability (or the risk to become poor), fiscal decentralization and public service delivery in the perspective of the development of China during the last 50 years. This development has been remarkable: a consistent high level of economic growth, a massive reduction of poverty and at the same time wide and fundamental reform of the public sector. The subject is a contemporary issue in particularly as vulnerability is considered a key for addressing the poverty challenges in the world and is strongly related to public services and decentralisation.The thesis presents a methodology to estimate the evolution of vulnerability by region through analysis of household assets consisting of liquid resources, human capital and health care. This is done on the basis of provincial level panel data in China from 1985 to 2001. Asset composition is estimated through an one-stage Theil decomposition index which is introduced into a logistic regression. The conclusion is threefold: Firstly, liquid assets and human capital contribute to the reduction of vulnerability, while health care does not reduce vulnerability. Secondly, Interior and Western regions have higher degree of vulnerability, while the Eastern region has lower vulnerability. Thirdly, inequalities within regions contribute about 20-30% to vulnerability, while inequality between regions contributes about 70-80% to vulnerability.