The impact of Province-Managing-County fiscal reform on primary education in China

•Causal effect of fiscal decentralization reform on elementary education expenditure•Combine matching and difference-in-difference to allow for self-sorting into reform•Positive effect on educational spending but little or negative effect on disparity•Allow for the concurrent County Strengthening and Power Expansion reform

Using longitudinal Chinese county-level data from 2005 to 2007, we examine the causal effect of the Province-Managing-County fiscal reform on primary education spending by combining propensity score matching with the difference-in-difference method and allowing for the concurrent County Strengthening and Power Expansion reform. While the fiscal reform significantly increases per pupil expenditure on elementary education, there is little evidence showing that this fiscal reform narrows the urban-rural expenditure gap within counties. This Province-Managing-County reform, on the other hand, aggravates regional educational spending disparity in elementary schools based on the observation that the reform has caused a higher increase of per pupil educational spending in the affluent Eastern Region than the increase in Central and West China.