Abstract: At present, it is more difficult to increase revenue and reduce expenditure for local finance. It is of practical significance to identify the exact relationship between vertical fiscal imbalance and efficiency of local government expenditure. Under the background of Chinese institutions, this paper brings the vertical fiscal imbalance and efficiency of local government expenditure into the same theoretical analysis framework and deduces the function that the vertical fiscal imbalance exerts the effect of“pushing up”and“pulling down”on the efficiency of local government expenditure. The findings of the empirical study show that, at present, China’s vertical fiscal imbalance will generally promote the efficiency of local government expenditure. Although there exists the central transfer payment mechanism, the vertical fiscal imbalance still aggravates the fiscal pressure of local governments and strengthens the pushing-up effect on the efficiency of local government expenditure. The intensity of this effect is also heterogeneous due to the different functional attributes of fiscal expenditure, which shows that the expenditure efficiency of science, education and other expenditures with certain production attributes is easily affected, while the efficiency of medical and health expenditure with almost pure welfare attributes is not significantly affected. Therefore, in the reform process of properly correcting the fiscal system of vertical imbalance, attention should be paid to the comprehensive implementation of the performance budget management system, increase of the strength of fiscal information disclosure, reasonable improvement of the assessment system for local governments and officials, and effective optimization of the central transfer payment mechanism.

Key words: vertical fiscal imbalance, efficiency of local government expenditure, fiscal pressure, central transfer payment