Flattening governments, flattening growth: Equalization–efficiency trade-off in jurisdictional reform
研究政府层级扁平化改革如何通过财政集权在促进区域均等化的同时削弱地方增长激励，基于中国省直管县改革数据发现其降低了省内不平等但抑制了人均GDP和生产率。
Flattening government hierarchies not only reduces organizational layers but also restructures fiscal capacity, reshaping both local growth incentives and regional redistribution. This paper identifies a fundamental trade-off: while flattening promotes equalization across regions, it simultaneously undermines economic efficiency at the local level. We develop a multi-tier government model showing that reallocating fiscal authority upward enlarges common revenue pools, which enhance redistribution but dilute local governments’ incentives to foster growth. Empirically, we exploit China’s staggered Province-Managing-County (PMC) reform as a quasi-natural experiment and apply a stacked difference-in-differences strategy to county-level panel data from 2000 to 2007. We find that the PMC reform significantly reduced intra-provincial inequality—measured by Gini, Theil, and related indices—but concurrently lowered county GDP per capita. Reductions in physical investment and firm-level productivity, rather than shifts in labor input, drove the efficiency loss. Heterogeneity analysis reveals that provinces with stronger fiscal pooling (higher VAT-sharing ratios) and broader administrative spans experienced a more severe equalization–efficiency trade-off. Our findings extend fiscal federalism and organizational structure theories by showing how hierarchy flattening and fiscal pooling jointly shape the balance between redistribution and local economic performance.