Abstract: There is a corresponding linkage mechanism among inter-county competition, transfer payments and the financial debt decision-making at county level, thereby affecting the quality of county financial development.This study indicates that the inter-county competition of Chinese style has become the incentives for the growth of county economy, there is no causal relationship between income and expenditure of the county finance, but is correlated with GDP growth. Since the implementing of the tax-sharing system, the financial negative externalities have been increasingly highlighted during the inter-county competition, the financial debts of county government is the inevitable result of the combination of the inter-county competition and the present financial incentive-restrain mechanisms. The transfer payments cannot always generate positive incentive effects on the county financial behaviors, on the contrary, it intensifies the level of inter-county competition; therefore, to borrow debts excessively is the strategic choices of the county government towards the incentive transfer payment.

Key words: inter-county competition；county financial debts；transfer payments; debt decision