Notice of RetractionFiscal decentralization, local government behavior, and unbalanced development: A theoretical framework

Notice of Retraction

After careful and considered review of the content of this paper by a duly constituted expert committee, this paper has been found to be in violation of IEEE´s Publication Principles.

We hereby retract the content of this paper. Reasonable effort should be made to remove all past references to this paper.

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The phenomenon that the provision of basic public goods is relatively insufficient compared to the rapid economic growth in China is of growing concern. This paper seeks to provide an interpretative framework to it, taking into account of both economic and political incentives in the context of fiscal decentralization of Chinese style. It is the performance appraisal system adopted by the central government, which emphasizes greatly on economic growth and fiscal revenue, that induces local governments to spend too much on infrastructure but too little on basic public goods. In the case of capital immobility, local governments accumulate capital by reducing tax rates on commodities and increase investment in infrastructure. And in the case of capital mobility, there are additional incentives to induce local governments to reduce tax rates and increase infrastructure investment in order to attract capital from abroad.