Intergovernmental transfers and local education provision - Evaluating China's 8-7 National Plan for Poverty Reduction

•I evaluated the effects of a poverty relief program on county education provision in China.•I used fuzzy regression discontinuity design as the identification strategy.•Intergovernmental transfers from the poverty relief program did not induce targeted counties to spend more on education.•Targeted counties did not achieve better short-term or long-term impact on illiteracy reduction.

Intergovernmental transfers are an important source of local public goods and services provision in many developing countries. Yet the empirical evidence on their effectiveness remains inconclusive partly because transfers are endogenous to political influence. This paper investigates the impact of a mix of intergovernmental transfers from a large-scale poverty relief program on local education spending in China between 1994 and 2000. Using a fuzzy regression discontinuity design, I first show no systematic evidence that counties benefiting from the program enhanced local education spending during the period of program implementation. I further show that the program has neither short-term nor long-term impacts on illiteracy reduction for the targeted counties.