Abstract: Taking tax and subsidy as the entry point, this pater explores the impact of fiscal resource reallocation inside of China’s manufacturing sector on the total economic efficiency of the manufacturing sector. The results indicate that, firstly, during 1998 to 2007, there existed obvious fiscal resource reallocations inside of China’s manufacturing sectors at different regions, especially the reallocation of subsidy; secondly, the fiscal resource reallocation has no significant effect on TFP and labor productivity of the manufacturing sectors; thirdly, through decomposing the main ingredients of the productivity, it is found that the reallocation significantly promotes the accumulation of capital per labor and the improvement of technical efficiency, but restrains the technical advances; fourthly, through the analysis of the institutional conatraints, it shows that the improvement of maketlization, especially the protection for the producer and the constraining of the government’s behavior, can significantly ease the negative effect of the reallocation on technical advances.

Key words: fiscal resource reallocation; TFP; technical advance; technical efficiency