Abstract
This short chapter contains an empirical study that, by applying the same theoretical framework as used in the previous chapter, examines the issue of strategic competition in public spending on education among different provinces in China. Our attention is on whether significant competition exists among the Chinese provincial governments in their education expenses. The presence of such interregional competition may arise either in response to certain mechanism of inter-provincial spillovers or to some mechanism of inter-provincial resource flows between provinces. Just as in the previous chapter, based on the theoretical models in the literature, we derive our basic regression specification, which constitutes the foundation for our empirical analysis in this study. By using the panel data GMM technique, we can show that under a “smooth-distance-decay” assumption in constructing the weighting scheme for the relevance of interaction between two provinces, our regression results provide evidence that supports the claim that there exists inter-provincial spatial competition in public expenditure for education among the Chinese provinces.
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Notes
- 1.
As already mentioned in the preceding chapter, Chap. 12, theoretical literature distinguishes between two types of strategic interaction. One type is interaction in the form of competition for some mobile resource, and the other type is interaction based on some spillover mechanism (Edmark 2007). Early theoretical studies such as Williams (1966), Pauly (1970), Oates (1972), and Boskin (1973) focused on interaction based on the spillover mechanism while some subsequent studies focused on interaction (competition) based on tax base mobility, generating what has become called the “tax competition literature”. The tax competition and the welfare competition models belong to the first type. In the former, local jurisdictions impose taxes on a cross-jurisdiction-mobile tax base, with each jurisdiction choosing its tax decision in an inter-jurisdiction interactive fashion by taking account of the tradeoff between its tax rate and the size of the tax base it ends up owning (see Wilson (1999) for a survey). In the latter, the welfare competition model, in which local people are free to migrate across borders in response to differentials in welfare benefits, a local jurisdiction chooses welfare decisions in an interactive fashion so as to attract (or avoid attracting) inflows of certain groups of people (see Brueckner (2000) for a survey). The second type of strategic interaction includes different specific forms of the spillover model. Two important examples are the pollution spillover model and the yardstick competition model. The former focuses on pollution (−abatement) decision making by individual jurisdictions, who recognize that strategic interaction in such decision making arises owing to pollution spillovers (see Wilson (1996) for a survey). The latter, the yardstick competition model, however, is based on information spillover. In this case strategic interaction is due to the fact that residents evaluate the performance of their local government by comparison with the surrounding jurisdictions, where the latter provides a yardstick against which residents evaluate the decisions of their local government (Besley and Case 1995).
- 2.
As mentioned in Chap. 12, these studies are some examples. Brueckner and Saavedra (2001), Brett and Pinkse (1997, 2000), Buettner (2001) and Hayashi and Boadway (2001) study inter-jurisdictional strategic tax competition. Ladd (1992), Heyndels and Vuchelen (1998), and Revelli (2001, 2002) also study strategic interaction in taxation but recognize that tax competition may be only one possible source, and that yardstick competition or some other behavior related to spillovers may also generate strategic interaction in taxation. They thus refer to the tax interaction as “tax mimicking”, a phrase that does not pin down the underlying cause of the behavior (Brueckner 2003). In addition, Murdoch, Sandler and Sargent (1997) and Fredriksson and Millimet (2002) examine inter-jurisdictional strategic interaction in pollution abatement efforts. Bivand and Szymanski (1997, 2000) examine strategic interaction in public-sector spending, specifically focusing on the costs of local garbage collection. Shroder (1996), Figlio, Kolpin and Reid (1999), Smith (1997), Saavedra (2000), and Edmark (2007) study strategic interaction among governments within the framework of the welfare competition model.
- 3.
Notations here follow those used in the preceding chapter.
- 4.
See the next subsection for the detail of assigning the weights in this study.
- 5.
See also Eq. 12.10 in Chap. 12 for a comparison.
- 6.
Because of the inclusion of the time intercept in Eq. 13.3, these characteristics variables need not be measured relative to the average characteristics of all provinces.
- 7.
Here the agricultural industry includes agriculture, forestry, animal husbandry and fishery and services in support of these industries.
- 8.
Statistical significance mentioned in this study pertains to the 5 % significance level unless otherwise stated.
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Jiang, Y. (2014). Strategic Competition in Public Spending on Education in Different Chinese Regions. In: Openness, Economic Growth and Regional Disparities. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40666-9_13
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