Abstract: Fiscal transfer payments are the important institutional arrangements to ensure the supply of basic local public services. By making use of China’s provincial-level panel data from 2003 to 2019, this paper conducts an empirical analysis of the impact of transfer payment distribution on the supply of local basic public services under the inter-governmental fiscal competition mechanism. The findings show that there is a significant competitive strategic interactive relationship between the distribution of intergovernmental transfer payments and the supply of local basic public services. And the more transfer payment funds distributed in the competitive regions, the more local governments are inclined to reduce the supply of the basic public services. This kind of competitive strategic interactive relationship can inhibit the incentive and safeguarding effect of the transfer payments on the supply of local basic public services. In terms of transfer payment types, the inhibiting effect of the competitive strategic interactive relationship on the supply of local basic public services is more prominent in the special transfer payments. In terms of the regions, the inhibitory effect of the competitive strategic interactive relationship on the supply of local basic public services is more obvious in the economically developed regions. Therefore, standardizing the order of fiscal competition among the regions, constructing a more scientific and transparent transfer payment distribution mechanism, and further optimizing the distribution structure of transfer payment funds are conducive to the incentive role of transfer payment system in ensuring the supply of local basic public services.

Key words: transfer payments, local basic public services, inter-governmental fiscal competition, strategic interactive relationship