Cultural Ties and Fiscal Transfer

Fiscal Transfer is important for achieving balanced regional development and common prosperity, but the information asymmetry between central and local governments reduces the efficiency of resource allocation. This paper argues that the cultural ties between ministers and the local government will help correct the information asymmetry and improve the efficiency of resource allocation. Based on the natural experiment of ministers’ reappointment, we apply a difference-in-differences analysis to estimate the cultural ties effect, and find that a minister makes the per capita earmarked grants of his dialect zone increase 184100 yuan, equals to an increase of 10. 7%. This result is robust, and the effect is affected by the amount of resources held by ministers and the strength of cultural ties. The fiscal transfer allocated by cultural ties can significantly boost the local economy, and the stimulus effect is greater than other fiscal transfer. The results of this paper help us understand how traditional culture is embedded in the national governance system and improve governance efficiency, and provide theoretical support for the realization of “Chinese path to modernization”.