Fiscal Decentralization and Regional Disparities

This chapter examines the impact of fiscal decentralization on regional disparities by examining the level of social security coordination as a case. The analysis reveals that the current social security system, coordinated at the municipal and county levels, has led to a “Matthew effect”. Specifically, economically developed regions demonstrate low dependency ratios and contribution rates, yet accumulate financial surpluses. In contrast, less developed regions experience high dependency ratios and contribution rates but suffer from funding deficits. For instance, data from 2015 indicate that Guangdong Province had a pension fund balance sufficient to cover 53 months of payments, whereas Heilongjiang Province could only cover one month. This disparity is primarily driven by differences in dependency ratios, which are influenced by labour migration patterns. This chapter proposes that improving the level of social security coordination can effectively mitigate regional imbalances. It recommends the establishment of a central redistribution fund mechanism and a gradual move towards nationwide coordination, alongside reforms to the systems governing contribution rates and benefit determinations.