Jin, Qian, and Weingast (2005) observe that provincial revenues and expenditures were more closely correlated in the 1980s and 1990s than in the 1970s. This correlation, they argue, shows a relative hardening of budget constraints. They argue that, in China, a hard budget constraint provided local incentives to foster non-state development, increasing tax revenues and reducing state obligations. Local benefits from economic growth also generated policies encouraging foreign direct investment. Zhang and Zou (1998) present a contrary view of Chinese provincial data, arguing that fiscal decentralization was associated with lower economic growth. Lin and Liu (2000),.
