Crowding Out or Flypaper? The Causal Effects of China's Centralized Rural Education Finance Reform

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Abstract

Do federal (central) and state (province) governmental education grants generate crowding out effects or flypaper effects on the local education spending? This paper estimates the causal effects of the centralized education finance reform in rural China since 2006 using the unique county-level data and two quasi-experimental methods. This study will explore the political economy of the local education spending to explain why the centralized reform does not have large crowding out effects on extra-budgetary spending nor flypaper effects on total spending in China.

Authors

• Fengming Lu, Duke University

• Xiaoyang Ye, University of Michigan