The impact of decentralization on the efficiency of grassroots government public services: evidence from the province-managing-county reform in China

Using China’s Province-Managing-County (PMC) reform as a quasi-natural experiment, we employ a staggered difference-in-differences model to estimate the causal effect of decentralization on public service efficiency at the county level. The results indicate that decentralization significantly reduces public service efficiency. This efficiency loss is heterogeneous across governance dimensions: the decline is most pronounced in administrative management, followed by education and economic development, while social protection remains largely unaffected. We attribute this pattern to two reinforcing mechanisms. First, in the absence of effective oversight, decentralization facilitates capture by local interest groups, enabling rent-seeking behavior and increasing the incidence of audit-detected regulatory violations. Second, China’s cadre evaluation system has historically placed significant weight on GDP growth as the primary criterion for official advancement, amplifies officials’ incentives to redirect devolved resources toward short-term, politically visible activities at the expense of long-term welfare provision. These findings demonstrate that the realized effects of decentralization depend critically on the alignment between formal institutional structures and informal incentive systems. Institutional misalignment generates systematic efficiency losses that structural reform alone cannot resolve. This study contributes to the decentralization literature by highlighting the role of institutional contingency in shaping reform outcomes, with implications for the design of decentralization policies across diverse governance contexts.