Abstract: Local superior governments have the advantage of longitudinal financial competition, which makes them have the institutional incentive basis to withhold transfer payment funds. By making use of the panel data of China’s provincial governments from 2000 to 2017, this paper empirically analyzes the local superior governments’ behaviors to withhold the transfer payment funds. The findings show that the local superior governments’ behavior of withholding the transfer payment funds will be decreased with the increase of fiscal revenue at the same level and will be increased with the increase of central government’s transfer payment allocated to the local areas. The interception behavior taken by the local superior government is mainly implemented through general transfer payments. The empirical findings of the heterogeneous regions show that in order to reduce the outflow of local financial funds from the net financial funds outflow regions, the local superior governments will adopt “anti-interception”subsidy measures to increase the transfer payment to governments below the provincial level. Therefore, in order to reduce the withholding behavior of transfer payment funds, it is necessary to strengthen the supervision and management of local governments’ transfer payments, standardize the funding channels and usage procedures of the transfer payment funds, establish and perfect the oversight and accountability mechanisms for the use of transfer payments, protect the rights and interests of local grass-root governments and vulnerable areas in allocating funds, and increase the proportion of classified allocation in transfer payments on the basis of reasonably dividing the responsibilities of vertical inter-governmental expenditures.

Key words: local superior government; transfer payment; fund withhold; downward shift of expenditure responsibility