The Third Plenary Session of the 18th CPC（Community Party of China）Central Committee emphasized that“public finance is the foundation and essential pillar of national governance”,advancing the imperative orientation of“establishing a contemporary fiscal system and fully supporting both national and local initiatives”.The high-frequency adjustments and regulations of inter-governmental fiscal relations in both expenditure and revenue power in the past decades have recently intensified the complexity of the regional linkage and spatial spillover between economic and fiscal elements in order to fulfill the expectations of high-quality economic development in present context.However,the spatial heterogeneity of fiscal decentralization has not been incorporated in existing methodology,leading to a significant underestimation of its comprehensive impact.In fact,under the dual pressure of political promotion and economic incentives,local development is constrained by the restrictions of the internal market under its jurisdiction,as well as by the spillover effect of the external market,which is the case of strategic interaction between regions.It indicates that if the spatial spillover and space game of fiscal decentralization are ignored,the practical explanatory power of the research will be substantially weakened.LeSage et al.（2012）measured the spatial effect of independent variables based on the partial differential matrix calculation model,which offers a fresh perspective for capturing the spatial spillover effects between regions since it yields results that are more precise than those from conventional point estimation techniques.The operational rule of fiscal decentralization might be explained using cutting-edge technology in a way that highlights Chinese peculiarities while reflecting the fundamental traits of finance.Such research is necessary not only to refine the socialist fiscal theory with Chinese features,but also to set up a modern fiscal system.In the early stages of the 14th Five-Year Plan,General Secretary Xi Jinping further proposed in Suggestions of the Central Committee of the Communist Party of China on Formulating the14th Five-Year Plan for National Economic and Social Development and the Long-term Goals for 2035,“clarifying the central and local governments' expenditure powers and expenditure responsibilities”as well as“establishing a modern fiscal system and enhancing governance capabilities”.This provides a conceptual direction and route guidance in the research field of Chinese-style fiscal decentralization.Consequently,the public financial staff members urgently need to engage in thorough consultations about serious issues such as how to scientifically analyze the operating law of fiscal decentralization,how to objectively assess the effect of fiscal decentralization,as well as how to comprehensively optimize the fiscal system.

The interaction between central and local government is the key issue of public finance and the fundamental framework for analyzing the brisk expansion of the Chinese economy.Therefore,this book makes an effort to begin with the link between the central and local finances,and to analyze the effect of local public goods supply against the backdrop of decentralization.This book follows the logic line of“fiscal decentralization analysis→mechanism identification and effect simulation → decentralization system optimization”,firstly analyzes the fiscal decentralization system with a focus on Chinese characteristics; secondly clarifies the internal mechanism of the multiple effects of decentralization on the supply of local public goods and implements the quantitative simulation;finally optimizes the fiscal system.This book consists of four parts:Introduction（Chapter 1）,Analysis of Fiscal Decentralization（Chapter 2）,Mechanism Identification and Simulation of Comprehensive Effects（Chapters 3-6）,and Optimization of Decentralization System（Chapter 7）.The following research starts from the scale effect,spillover effect,preference effect and environmental benefit of fiscal decentralization：

（1）The first major thesis of this book is that the revenue and expenditure sides of fiscal decentralization exert entirely distinct impacts on government scales,furthermore,the expenditure decentralization has a threshold effect on the size of local governments,depending on transfer payments,the capacity to provide local public goods and the structure parameters governing public expenditure.①Revenue and expenditure decentralization play opposing roles,with the former making it difficult to regulate the size of the central government while the latter shows a strong positive promotion impact;②When it comes to the decentralization at the expenditure side,the three factors-transfer payment dependence,local public goods supply capacity,and public expenditure structure-have an impact on the scale of local governments and exhibit a threshold effect.Policy recommendations include diminishing the dependency of local governments on central transfer payments;improving the behavioral restraint mechanism of local governments to enhance the supply capacity of regional public goods;strengthening social security spending to give rein to the incentive for fiscal spending to leverage private funds.

（2）The second main theme of this book is that the extent to which the revenue and expenditure sides of fiscal decentralization affect local public spending by the characteristics of public goods,respectively,that is,complementarity and substitutability,as well as by distribution practices and the supply structure of public goods.Plus,the spatial spillover effect varies due to the spatial and geographical distance.①Revenue decentralization is negatively correlated with the supply of spillover public goods.Specifically,if local public goods and spillover public goods are substitutes or complements with MRS greater than,expenditure decentralization may expand local public goods supply;②The spillover effect of geographic proximity weight matrix（CBW）is significantly larger than the economic weight matrix（EBW）,proving that competitive and imitative behaviors are more common among local governments which are geographically adjacent but not economically.Policy suggestion:the spatial evidence of public goods supply demonstrates that local governments can adopt a regional joint development model to alleviate the waste of scarce public resources and establish geographically interconnected urban development clusters with the ultimate goal of raising the standard of regional public goods supply.

（3）The third predominant argument of this book is that,through the local capital input coefficient and local taxation,the revenue and expenditure sides of fiscal decentralization have an impact on the distribution of labor-capital factor,but these effects are completely different.①The increase of revenue decentralization leads to the transfer of production factors to capital,however,expenditure decentralization ultimately entails the reduction in the proportion of capital distribution and an increase in the proportion of labor distribution; ②The spending oriented by economic development does promote the distribution of production factors to be tilted towards capital factors,while driven by social equity will increase the proportion of labor remuneration.Policy suggestions:putting an emphasis on the adjustment of spending preferences,such as promoting systems for appraising local government performance,establishing two-way political incentives and effective transfer payment systems,as well as supervising local spending.

（4）The last major point of this book is that there exists a completely varied impact of fiscal decentralization on environmental pollution between the expenditure and revenue side of fiscal decentralization.Moreover,the impact of fiscal decentralization on environmental pollution has been significantly deteriorated by market segmentation.①Revenue decentralization not only improves the local environment through the spillover of pollution costs,but also has the potential to exacerbate pollution problems owing to excessive investment in rapid results and lucrative profits;②The revenue decentralization has a greater positive impact on environmental pollution than a negative one,which shows that the significance of fiscal decentralization in minimizing environmental pollution cannot be ignored in the factor-segmented market.Policy suggestion:moderately strengthening the central authority while clarifying the shared authority between the central government and the local government.The higher the degree of decentralization,the more likely it is to aggravate the PTG of local governments.Therefore,it is necessary to impose restrictions and controls on local governments to lighten the burden on pollution brought on by ineffective and repetitive production.

Key Words:Chinese-style fiscal decentralization; local government expansion;spillover effect;public preference;environmental control