Abstract: The Chinese fiscal decentralization system has encouraged local governments to take the way of fiscal competition, so as to fight for the floating capital outside the region. This paper makes use of the provincial panel data from 1995 to 2014 to analyze the influence of local government fiscal competition behavior on inter-provincial capital flows. The results show that to blindly increase the local fiscal expenditure cannot produce the effect of inviting investment, but only a little positive spillover effect on the surrounding areas. Only the fiscal expenditure in the field of social livelihood is the key point of local government expenditure competition. The increase of fiscal revenue has a significant negative impact on capital inflows, but to increase appropriately the non-tax revenue will weakly promote net capital inflows. Therefore, it is not feasible to attract domestic capital by means of fiscal competition. It is necessary both to emphasize the decisive role of market mechanism in the process of resources allocation and to adjust the structure of fiscal revenues and expenditures and the appraisal mechanism for local officials.

Key words: Chinese style fiscal decentralization; local government; fiscal competitive behavior; provincial capital flow