Political Decentralization and Inflation: Sub-National Evidence from China

One possible political determinant of macroeconomic instability scholars have explored at length is decentralization, but cross-national research measuring political decentralization in terms of constitutional federalism has produced mixed evidence regarding its effects on inflation. Conceptualizing political decentralization in terms of governing political party decentralization but acknowledging the challenges of cross-national data collection, the authors suggest the utility of a sub-national approach by studying one country under single-party rule. Drawing on provincial-level cross-section time-series data, they find that political decentralization measured as the inverse of central government political control, via the ruling party, over the different provincial governments is positively correlated with provincial inflation in China during 1978-97. The finding is robust to alternative specifications, expanded year coverage and Granger causality tests.