Intergovernmental Fiscal Transfers and County-Level Education Expenditure in China - Research Paper

Oct 15, 2026

The paper investigates how different intergovernmental fiscal transfer types affect county-level public education spending in China, with special attention to the leakage of categorical subsidies for rural compulsory education. Using a quantitative quantile regression framework and 2007 data covering 1,985 counties, it evaluates impacts on both education expenditure levels and cross-county disparities. Results show a substitution effect from most transfers, while central rural compulsory education subsidies crowd out local investment.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages27

Reading Time1 h 8 min

AccessFree to download

Introduction

Fiscal decentralization for compulsory education

Regional disparities in fiscal input

National policies to improve rural financing

Intergovernmental Fiscal Transfers and County-Level Education Expenditure in China Bin Huang1, Yunxia Dong2, Jingjing Miao3, and Caiqun Xu4 1 Nanjing University of Finance & Economics 2 Nanjing Xiaozhuang University 3 Nanjing University of Finance & Economics 4 University of Rochester © East China Normal University & East China Normal University Press, Shanghai, China Abstract Purpose—The purpose of the paper is to investigate the impact of various types of intergovernmental fiscal transfers on local public education expenditure at the county level in China and to estimate the leakage of categorical subsidies for rural compulsory education. Design/Approach/Methods—It is a quantitative study. The paper constructs a quantile regression model and adopt data collected in 2007 for 1,985 counties in China to examine the impact of relevant fiscal transfers. Findings—The results reveal that most intergovernmental fiscal transfers exert a substitution effect on the local education expenditure, whereas subsidies for rural compulsory education from the Central Government have a crowding-out effect on education investments from local financial resources. Although the subsidy program generally narrows the education expenditure disparity across counties, there are heterogeneous effects across different regions. Originality/Value—The paper estimates and compares the impact of fiscal transfers on both the level and disparity of local public education in different regions, and provides a possible explanation for the crowding-out effect of fiscal transfers in China. Keywords Fiscal transfer; public education expenditure; leakage; disparity across counties Corresponding Author: Caiqun Xu [cxu17@u.rochester.edu](cxu17@u.rochester.edu) ECNU Review of Education 1 (3) 117 1. Introduction The year of 2001 constitutes a critical transitioning point for China’s fiscal policy for compulsory education since the Chinese economic reform. Before 2001, a relatively decentralized management system was adopted to implement China’s fiscal policy for compulsory education. The Central Committee of the Communist Party of China issued the Decision on the Reform of the Education System in May 1985, proposing the regional and procedural implementation of a 9-year compulsory education system in China to decentralize compulsory education to local authorities and promote a multilevel management system that distributes responsibilities to local governments. In accordance with the arrangements of this system, various levels of governments were responsible for compulsory education expenditure designated from them—the provincial, prefectural and county/ district authorities were responsible for the funding for urban elementary and junior high schools, whereas township governments were responsible for the public funding in rural areas. China is vast in rural areas with a large population of school-aged children where township governments have long been burdened with the expenditure for compulsory education. The Chinese government is a five-level organization with the Central Government in the hierarchy, followed by provincial, municipal, county/district level, and township level governments. Public resources have been very limited when it comes to the lowest level of township governments. The Project “County- and Township-Level Fiscal Policies and Their Effects on the Farming Community” conducted by Development Research Center of the State Council reveals that township governments were responsible for 78% of the funding for compulsory education in China in 2001, whereas county and provincial governments and the Central Government only contributed 9, 11, and 2 percent of the pool, respectively. The heavy burden of rural compulsory education expenditure imposed on township governments, which are scarce in finance, inevitably hinders fiscal input in rural compulsory education and leads to a series of severe consequences, including the deterior

FAQs

What is the main research purpose of the paper?

It examines how intergovernmental fiscal transfers influence county-level public education expenditure in China and estimates leakage of categorical subsidies for rural compulsory education.

What data and method are used to study these effects?

The study uses 2007 data from 1,985 counties in China and applies a quantile regression model to assess impacts of fiscal transfers.

What key finding does the paper report about most fiscal transfers?

Most intergovernmental fiscal transfers show a substitution effect on local education expenditure.

How do central subsidies for rural compulsory education affect local education investment?

The paper finds a crowding-out effect: central subsidies for rural compulsory education reduce local financial resources devoted to education.

Oct 15, 2026

Uploaded by mieayamfan