Abstract: Due to lack of the “hand vote” and “vote with feet” mechanism in China’s fiscal decentralization, the local governments try to pursue their maximal political achievements by reducing per-student educational fiscal expenditure through scale economy resulted from school merges, which is the major reason for the local governments’ misinterpreted implementation of the centre government’s primary and secondary school layout adjustment policy. The empirical results based on the panel data modal across 31 provinces from 2001 to 2010 in China show that the higher degree of fiscal decentralization, the greater the local governments’ efforts in merging primary and secondary schools, the less the number of schools, the lower the per student educational expenditure in budget. In order to solve this problem, this paper puts forward such policy recommendations as planning school layout scientically, improving the performance assessment indicators, strengthening the constraints of rules and procedures, and so on.

Key words: fiscal decentralization; local government; behavior distortion; primary and secondary school; layout adjustment