The surprising "fiscal disparity" in China
The above figure is a Box-map of (price-adjusted) per capita local expenditures (PCEXP) of Chinese provinces in 2000. To my surprise, the top six provinces are Shanghai, Tibet, Beijing, Tianjin, Qinghai, and Inter-Mogolia. Shanghai, Beijing, and Tianjin are three Municipalities (city-size special provinces) with highest per capita GDPs; so the high expenditures there are understandable. What about Tibet, Qinghai, and Inter-Mogonlia? They are remote, minority-dominated, and very undeveloped, with almost the lowest per capita GDPs in China. The high per capita expenditures are probably driven by higher service cost (in low density areas) and preferential fiscal treatments to minority areas.
What this map shows is that the typical ways to quantify China’s fiscal disparity with inequality indices are dead wrong! The high Gini coefficients of PCEXP has been widely used as an evidence of China’s fiscal disparity. However, the numbers are actually driven in great part by higher expenditures in some of the most underdeveloped areas, which is probably a good thing to do from equity perspective. We need better ways to quantify inequality. One possible solution is probably to design “objective-based” indices that are based on the ranking of service needs. More to come when my project is moving forward...
p.s. The map below shows that the general pattern was consistent for the past two decades. The top five remained almost the same in year 1990, 1995, 2000, and 2005.