Fiscal centralization versus decentralization of transport infrastructure operation and maintenance

The issue of fiscal decentralization and centralization of China’s transport sector has been controversial in the past. Based on vertical fiscal relations and horizontal competitive relations, this paper constructs a stochastic evolutionary game model to examine the behavioral strategies and interactions among the central and two local governments for transport infrastructure operation and maintenance (TIOM). Using the Chinese case study, this paper simulates the strategy evolution trajectories of the governments and their sensitivities to key determinants in various scenarios. The model analysis indicates that when the central government implements a centralized system, the two local governments cannot be simultaneously motivated to improve TIOM; however, when the central government adopts a decentralized approach, the two local governments can be simultaneously motivated under certain conditions. Case simulations based on the latter scenario reveal that increased regulatory costs, opportunity costs, and transfers lead the central government to choose a decentralized system. Additionally, greater benefits, reduced costs, improved transfers and penalties, intensified competition, and significant spillover effects can incentivize local governments to improve TIOM. These findings contribute to a better understanding of the evolutionary process and dynamics of the central-local fiscal relations in the transport sector.