Abstract: To study the interaction between local governments’ financial policies is of great significance to the top-level design of China’s financial and taxation system. Through theoretical analysis and by using the three-stage Bootstrap DEA and Spatial Durbin model, this paper measures and tests China’s local government efficiency at provincial level from 2007 to 2011. The results indicate that spatial dependent relationship of mutual promotion exists in such controlling variables as local government efficiency and its economic development level, the proportion of persons with higher education background, the degree of fiscal decentralization, and the degree of openness to the outside world, etc.. Therefore, several measures should be taken into account, such as to enhance the regional personnel exchanges and stimulation of local officials, improve market openness and education level of tax-payers, and perfect the financial and taxation systems that match the financial resources with expenditure responsibilities, these could help to improve government efficiency and give positive external play to its influencing factors.

Key words: local government; financial policy; government efficiency; spatial dependency relationship