The impact of financial and fiscal decentralization on investment and consumption ratio

Based on the analysis and testing of provincial panel data in China from 1998 to 2014, financial decentralization was taken as the threshold variable to investigate the nonlinear relationship between China’s financial decentralization and ratio of investment to consumption. The results show that: ① At different levels of financial decentralization, China’s financial decentralization has different effects on the ratio of investment to consumption, which is characterized by the nonlinear characteristics of “double threshold effect”. ② The nonlinear relationship varies with different level of financial decentralization. In provinces with low levels of financial decentralization, financial decentralization is positively related to the ratio of investment to consumption; in the provinces with medium levels of financial decentralization, the relationship between financial decentralization and the ratio of investment to consumption is uncertain; in the provinces with high levels of financial decentralization, financial decentralization is negatively related to the ratio of investment to consumption. ③ Fiscal decentralization has some influence on the nonlinear relationship between financial decentralization and the ratio of investment to consumption. The combined effect of financial and fiscal decentralization has expanded the ratio of investment to consumption. ④ The number of provinces with high levels of financial decentralization in China is quite small, with most of the provinces being still in the stage of medium and low financial decentralization. In order to reduce the ratio of investment to consumption, the financial decentralization process should be promoted vigorously in provinces with low or medium levels of financial decentralization.