Abstract: The fact that conflicting empirical evidences regarding Chinese government size may be attributed to the negligence of common factors in model specifications. Using the cross-sectional dependent heterogeneous dynamic panel model developed by Pesaran (2006), this paper aims to unveil the determinants from various aspects based on provincial panel data from 1997 to 2011. We succeed in identifying the common elements to be the GDP growth and reform of administrative system. The former is a long term driving force, while the latter exerts a short-term negative impact. Besides, the cross-sectional variations of idiosyncratic errors coincide with stylized facts about institutional reforms among local governments, rendering that our conclusions are more convincing. Moreover, it also indicates that the sizes of local governments are essentially up to the top-down will of central government. Therefore, the reduction of government size proves difficult and relies on enhanced personnel quality and administrative efficiency while satisfying the increasing demand for public services.
Keywords: Government Size, Public Sector Employment, Size Control, Common Factor
source:Finance & Trade Economics ,No1,2014