Fiscal decentralization and interregional Capital misallocation: evidence from China

Misallocation of factors production has been recently viewed as a promising explanation accounting for the large difference in total factor productivity (TFP) across countries. This article differs from previous studies by concentrating on interregional capital misallocation and focusing role fiscal decentralization shaping misallocation. Using city level panel data set, we measure intra-provincial inter-city China over 2003–2018. The empirical results based provincial suggest that can lower while revenue performs better than expenditure decentralization. We further find this positive effect is more significant much larger when it market rather government intervention driving flow capital. are robust to subsample regressions, IV estimations, spatial autoregressions alternative measurement