Socio-Economic Planning Sciences 89 (2023) 101700

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Socio-Economic Planning Sciences

journal homepage: www.elsevier.com/locate/seps

Incentives for local government expenditures on people’s livelihood: the

role of high-speed rail
Xia Meng a, Tao Ding a, Haisen Wang b, c, *
a
School of Economics and Management, China University of Geosciences, Wuhan, 430074, China
b
Economics and Management School, Wuhan University, Wuhan, 430072, China
c
Research Center of Yangtze River Economic Belt Development, Wuhan University, Wuhan, 430072, China

A R T I C L E I N F O A B S T R A C T

Keywords: Can high-speed rail (HSR) lines create effective incentives for local governments to supply public goods for
High-speed rail people’s livelihood? This paper builds a time-varying difference-in-differences (TVDID) model and uses
Market access 2002–2018 Chinese data. The empirical results show that HSR enhances the fiscal responsiveness of local gov­
Human capital
ernments and creates effective incentives for local governments’ expenditures on education and medical/health
Government capacity
Basic public services
care; however, this “HSR effect” does not significantly influence expenditures on social security or employment.
The mechanism analysis shows that HSR has a significant amplification effect on interregional competition,
specifically in terms of market access and human capital agglomeration. Notably, the opening of HSR lines forms
a new “incentive-constraint” mechanism for local governments to supply public services for people’s livelihood
from both the supply and demand sides, and the fiscal and administrative capacities of local governments can
strengthen the influence of HSR lines on the supply of public goods for people’s livelihood.

1. Introduction
Improving the quality and level of the public service supply by local
governments and realizing basic public service equity are the core
propositions for social governance by local governments in China. Since
the reform and opening up, China’s economic development has made
remarkable achievements, and basic public services for people’s liveli­
hood have comprehensively improved. However, there is still a struc­
tural imbalance in the allocation of resources for education, medical and
health care, and social security between urban and rural areas, showing
obvious spatial dimensions and differences and, in the supply and equity
of basic public services, becoming a challenge for governance by local
governments. In recent years, China has continued to expand household
registration system reform, and liberalized and relaxed various types of
requirements for urban household registration. In doing so, China has
effectively facilitated social mobility, enhanced the incentives for resi­
dents to seek high-quality basic public services [1], and raised residents’
expectations of improved welfare levels. In particular, the rapid devel­
opment of high-speed rail (HSR) in China in recent years has greatly
changed the pattern of relative locations between cities [2,3], effectively
shortened the spatial and temporal distance of travel, strengthened the
linkages between cities [4], generated a significant “traffic creation
effect” [5], and improved the efficiency of population flow between
cities with stations [6]. Thus, China is further meeting residents’ de­
mand for basic public services across regions, breaking the regional
boundaries and spatial dimensions of people’s access to basic public
services, and effectively improving the accessibility of basic public
services.
The construction of high-speed rail brings about rapid flow and ex­
change of resources such as people, finance and technology, which can
reduce the cost of factor flow and improve the rate of factor flow [7,8]. It
is conducive to improving the efficiency of resource allocation across
regions and achieving national efficiency goals and regional equality
goals in a coordinated manner, with significant network and structural
effects. HSR lines improve the accessibility of cities, strengthen the
connection between cities that serve as transportation hubs, and accel­
erate regional market integration, which enables the sharing and
diffusion of basic public service resources within the same network,
generates positive spillover effects, and enhances overall welfare,
demonstrating a network effect. Furthermore, Institutional constraints
such as the household registration and land systems and government
intervention and control have resulted in the artificial market segmen­
tation [9]. However, HSR breaks regional administrative divisions and
market segmentation, reduces transaction costs and time costs, and

* Corresponding author.Economics and Management School, Wuhan University, Wuhan, 430072, China
E-mail address: hswang@whu.edu.cn (H. Wang).

https://doi.org/10.1016/j.seps.2023.101700
Received 20 June 2023; Accepted 10 August 2023
Available online 11 August 2023
0038-0121/© 2023 Elsevier Ltd. All rights reserved.
X. Meng et al.
changes the direction of interregional factor mobility and residents’
location preferences for basic public service choices, leading to the
divergence of individual benefits and costs from social benefits and costs
and resulting in a structural effect. At the factor competition level, the
opening of HSR lines promotes market integration, strengthens regional
competition effects and learning spillover effects [10], intensifies
interregional competition based on mobility factors, and creates effec­
tive incentives for livelihood expenditures by local governments. At the
public service demand level, the opening of HSR lines promotes the
agglomeration, selection, and sorting effects of residents’ demand for
basic public services [11], which leads to a mismatch between the
supply and demand of basic public service resources allocated on the
basis of rigid administrative divisions and thus generates constraints on
local governments’ livelihood expenditures. The differences in the social
governance capacity of local governments, especially differences in the
fiscal and administrative capacities of local governments, cause signif­
icant heterogeneity in the responses of local governments to the com­
bined effects of these two types of capacity, resulting in a structural
imbalance and a loss of efficiency in the supply of public service re­
sources. Under conditions of regional openness, what is the influence of
the opening of HSR lines on the fiscal behaviour of local governments? Is
the opening of HSR lines conducive to the formation of new incentives
for livelihood expenditures by local governments?
To answer these questions, this study constructs a complete frame­
work to explore the influence of the opening of HSR lines on the fiscal
responsiveness of local governments and the corresponding mechanism
(fiscal responsiveness is the extent to which residents’ public goods
preferences and needs respond to government public expenditure de­
cisions) to provide an important reference for optimizing the spatial
allocation and equity of basic public services in new development stages.
Compared with previous studies, this study makes the following con­
tributions. First, on the basis of the allocation of public resources based
on rigid administrative divisions, this study introduces HSR as an
exogenous shock factor to analyse the influence of the opening of HSR
lines on local governments’ livelihood expenditures and responsiveness,
providing a new perspective for local governments to strengthen and
optimize the supply of public services and to promote basic public ser­
vice equity. Second, this study analyses the amplification effect of the
opening of HSR lines on regional competition. The opening of HSR lines
promotes interregional competition, with market access and human
capital agglomeration as important mediating mechanisms. Local gov­
ernments use more competitive strategies for livelihood expenditures,
and the fiscal and administrative capacities of local governments are
important factors affecting expenditure intensity, providing new in­
centives for improving the fiscal responsiveness of local governments.
Third, based on the “HSR effect,” a policy balance for the social gover­
nance of local governments is proposed to achieve a balance between
enhancing urban competitiveness and meeting residents’ basic public
service needs, providing a new path for enhancing the governance ca­
pacity and level of local governments.
2. Literature review
New economic geography theory states that the spatial agglomera­
tion of economic activities promotes the development of cities and the
flow of public service resources to central regions. In a heterogeneous
space, there is a large gap between the level of economic development
and the supply capacity of basic public services, with the emergence of
certain regional boundaries. The “spatial devouring” effect and spatial
correlation effect of the HSR network greatly reduce the regional
boundaries of basic public services in different regions and amplify the
influence and range of central cities. In the process of spatial agglom­
eration and the diffusion of basic public service resources, trans­
portation infrastructure is both a prerequisite for spatial agglomeration
and a condition for the spatial diffusion of advantageous regions [12].
According to transport creation theory, the “transfer effect” of HSR
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Socio-Economic Planning Sciences 89 (2023) 101700
breaks the regional division of regional basic public service resources
and creates new commuters [5,6] and demanders of basic public ser­
vices. The opening of HSR lines has a significant “spatiotemporal
convergence” effect, providing a new channel for “cross-border” resi­
dents to access basic public service resources such as regional education
and medical care [13]. To a certain extent, improvements in the trans­
portation environment enhance the advantages of regional public ser­
vice resources, which in turn promote the reselection of residential areas
by different groups based on their needs for public service resources,
causing changes in the spatial pattern of residents’ demand for basic
public services [14,15]. Specifically, for cities with high levels of basic
public services and large populations, the radial connection and transfer
effect of HSR creates more public service demanders, and in the short
term, urban public service resources are likely to be in short supply due
to excessive demand, which in turn causes a “congestion” of public
services and a decrease in utility. In contrast, cities with low levels of
basic public services and small populations have difficulty scaling public
service resources due to the transfer effect of HSR. However, some re­
searchers have shown that over time, the opening of HSR lines leads to
an increase in the spatial density of populations living in central cities
and the development of employment opportunities and economic ac­
tivities along more scattered paths, creating decentralized economic
spaces and new development corridors [16]. The allocation of basic
public service resources among cities needs to follow this trend.
Accordingly, this paper proposes hypothesis 1: the opening of HSR
lines will help increase local government expenditures on public goods
for people’s livelihood.
Under a system of fiscal decentralization, there are fiscal competition
and promotion incentives among local governments, making production
expenditures more likely and thus resulting in insufficient livelihood
expenditures. Due to the differences in development stages and the types
of government responsibility in various regions [17], there are signifi­
cant regional disparities in the allocation of basic public service re­
sources [1]. From the perspective of the transportation infrastructure
itself, HSR allows basic public services in various regions to coexist in a
spatial network, with significant externalities and income redistribution
effects. The mechanism of the influence of HSR on local governments’
livelihood expenditures is mainly reflected in the incentive mechanism
formed by competition among local governments and the constraint
mechanism formed by population flow. The opening of HSR lines is
conducive to enhancing local spatial advantages, effectively increasing
the capacity of other modes of transportation, reducing transaction
costs, narrowing the price gap between regions, significantly improving
market access, increasing the scale of trade [18], accelerating the
interregional mobility and spatial reallocation of factors such as finan­
cial capital and human capital, expanding the degree of economic
integration [19], and promoting spatial spillovers and competition ef­
fects. Furthermore, improvements in urban accessibility enhance the
efficiency of population flow, which may generate employment, hous­
ing, and innovation corridors, accelerate market integration and the
spatial transfer of residents’ demand for basic public services, increase
the demand density of cities that serve as transportation hubs, and form
a rigid constraint on local governments’ livelihood expenditures.
The opening of HSR lines enhances the competitiveness of cities and
further intensifies interregional competition, but the incentive-
constraints generated for different cities are different, resulting in
different competition effects [20] and substantially affecting the stra­
tegic behaviour of local governments’ livelihood expenditures.
Increasing public expenditures is an important strategy for governments
to compete for the tax base of working capital and human capital, and
governments choose the appropriate combination of fiscal revenue and
expenditures based on factors such as the preferences of the public to
retain and attract tax-paying residents and enterprises. Dziuda et al. [21]
argue that with the changing socioeconomic environment, the social
costs arising from the insufficient supply of public goods for people’s
livelihood increase continuously, and the combination of capital and
X. Meng et al.
highly skilled labour is changing the competition mode of government
expenditures from low taxes and public inputs that favour material
capital to low taxes and goods for people’s livelihood that balance ma­
terial and human capital inputs. However, some studies have also noted
that competition among local governments distorts the structure of local
government expenditures, with an increase in production expenditures
and a decrease in livelihood expenditures. Wang et al. [22] point out
that the competition among regions to attract investment projects
indeed leads to the rapid development of developing economies, but the
excessive use of incentives by local governments to attract foreign in­
vestment results in a serious lack of livelihood public services. Zodrow
and Mieszkowski [23] use a game model of tax competition to show that,
assuming the local public goods budget comes from the capital tax
revenue within a jurisdiction, local tax competition leads to a sharp
decrease in local fiscal revenue and an inadequate supply of public
goods. Keen and Marchand [24] also argue that tax competition among
local governments leads to a systematic distortion of the expenditure
structure. That is, in the entire public expenditure structure, public input
expenditures into the enterprise production function increase, and
public goods expenditures into the household utility function decrease.
Furthermore, the higher the level of competition within local govern­
ment is, the greater the likelihood of the formation of a structure with a
bias towards production expenditures. The interregional “fiscal
competition mechanism” and the “scale competition effect” intensify
intergovernmental competition, leading to an imbalance in the inter­
regional public goods supply structure and triggering the free-riding
behaviour of neighbouring regions and the implementation of substi­
tution strategies for fiscal expenditures [25]. Although the market
environment from segmentation to integration is conducive to the for­
mation of regional spillover benefits of livelihood expenditures, do the
incentives for and constraints on the opening of HSR lines with respect
to the supply of goods for people’s livelihood go beyond the influence of
a “fiscal competition mechanism” and the “scale competition effect”? Do
local governments positively respond to the livelihood needs (e.g., ed­
ucation and health care) of “HSR migrants”? Currently, effective
empirical research and countermeasures are lacking. Overall, there is
still no consensus on the net influence of the opening of HSR lines on
local governments’ livelihood expenditures.
Therefore, this paper proposes hypothesis 2: competition among
local governments has a mediating role, which is embodied in the
competition over market access and human capital.
Systematic research and empirical evidence are needed to under­
stand the differences in the responsiveness of local governments to the
opening of HSR lines. With China’s fiscal decentralization system as the
basis, numerous studies have analysed the causes of and incentives for
the “absence” of local fiscal expenditures on people’s livelihood [26] as
well as the environment and mode of government behaviour [17] from
the perspectives of fiscal competition, transfer payments [27], and
promotion incentives [28,29]. Some studies have also noted the exter­
nalities and spatial spillover effects of transportation infrastructure such
as HSR, but research on the causes of the differences in the influence of
the opening of HSR lines on local fiscal responsiveness has not been
adequately conducted. There are differences in the influence of the
opening of HSR lines on local governments with different levels of
economic development, financial resources, and social governance ca­
pabilities. That is, some local governments positively respond to the
spatial transfer of the demand for public services from HSR, and other
local governments have imbalances in their fiscal expenditure structure,
showing varying degrees of distortion [30,31]. The reason may be that
when providing local basic public services, local governments often face
a “vertical fiscal imbalance,” which can be compensated for by transfer
payments provided by the central government or circumvented by
decentralizing taxation power to local governments [1]. In practice,
both paths generate different negative externalities, which have been
analysed in numerous studies based on different degrees of fiscal
decentralization [32,33]. Bardhan and Mookherjee [34] argue that the
3
Socio-Economic Planning Sciences 89 (2023) 101700
above analysis ignores the key institutional feature of the government’s
ability to implement policies. Bellofatto and Besfamille [1] incorporate
the administrative and fiscal capacities of local governments into their
analytical framework to investigate the optimal degree of fiscal decen­
tralization under different local government capacities and the condi­
tions for achieving the effective provision of local public services. China
employs a government-led governance model. The governance behav­
iour of local governments directly determines the economic and social
development of the areas under their jurisdiction [35], and the differ­
ences in the capacity of local governments form a new constraint on the
supply of public goods for people’s livelihood. Currently, there are sig­
nificant differences in the degree of fiscal decentralization and fiscal
imbalance among different cities in China as well as differences in social
governance capacity, such as the lack of government responsibility [17]
and the selectivity of a vertical co-response to central policies. Despite
the influence of China’s economic transition and its objective institu­
tional conditions, the differences in the subjective and objective factors
of local governments are still important causes of the heterogeneity in
the quality and level of basic public service provision.
Therefore, this paper proposes hypothesis 3: the administrative ca­
pacity and financial capacity of local governments can regulate the
relationship between HSR and local government expenditures on public
goods. Fig. 1 shows the path of the influence of the opening of HSR lines
on the bias of local governments’ livelihood expenditures.
3. Research design
3.1. Econometric model setting
To evaluate the influence of the opening of HSR lines on local gov­
ernments’ livelihood expenditures, this study treats the opening of HSR
lines as a quasi-natural experiment and uses a time-varying difference-
in-differences (TVDID) model for analysis. This model establishes dif­
ferences with respect to time and group to remove common trends and
individual heterogeneity and to allow for the presence of confounding
factors that do not change over time. It reveals the net influence by
comparing the changes of two groups across the same period; thus, the
key to this model is distinguishing between the treatment and control
groups. The control group can present counterfactual results with
respect to the treatment group. The following baseline model is set:
∑
Epgit = β0 + β1 Hsrit + βXit + μt + vi + εit (1)
Where i represents the city; t represents the year; Epg is the dependent
variable, including Total, Education, Security and Medical); Hsrit is the
core independent variable, with Hsrit = 1 when an HSR line was opened
in city i in year t and Hsrit = 0 otherwise; X is the control variable at the
city level; μt represents year fixed effects; vi represents individual fixed
effects, which are used to control for the influence of omitted variables
that do not vary by year and city; and ε is the random error term.
3.2. Variable
3.2.1. Explained variable (Epg)
Fiscal expenditure is an important indicator that reflects the incre­
mental fiscal responsiveness of a city. This study uses Epg to represent
the government’s preference for public goods expenditure on people’s
livelihood, including total expenditure bias (Total) and structural bias
(Education, Security and Medical). Total is the total bias towards liveli­
hood expenditures, which is expressed as the ratio of the proportion of
the total livelihood expenditures of a city to the proportion of the total
national livelihood expenditures. Taking Total as an example, the
calculation formula is as follows:
X. Meng et al.
Fig. 1. The path of the influence of HSR on the bias towards expenditures on livelihood public goods.
/( / )
∑ ∑ (2)
n n
Totalit = (publicit /financeit ) publicit financeit
i=1 i=1
Among them, public represents the sum of education expenditures,
medical and health care and family planning expenditures, and social
security and employment expenditures in a city; thus, public represents
the total financial expenditures of the city. The denominator represents
the proportion of the total national people’s livelihood expenditures in
the national fiscal expenditures. The formula measures the deviation
between the proportion of urban people’s livelihood expenditures and
the average national people’s livelihood expenditures; the larger the
value is, the more the local government tends to spend on public goods
for people’s livelihood. Education, Security and Medical are the govern­
ment’s preference for spending on public goods such as education, social
security and employment, and medical and health care and family
planning, respectively. Salinas and Solé-Ollé [26] show that there is a
monotonic relationship between local fiscal responsiveness and the fis­
cal expenditure structure. Therefore, this study uses the ratios of the
proportions of a city’s expenditures on education (Education), medical
and health care and family planning (Medical), and social security and
employment (Security) to the proportions of the corresponding national
average expenditures. The calculation formula is the same as that for
Total.
3.2.2. Core explanatory variable (Hsr)
The subjects of this study are prefecture-level cities and above. The
cities where HSR stations have been established since 2008 were ob­
tained from the China Railway Yearbook and the China Railway Cor­
poration website, and the cities that have stations for intercity HSR and
non-intercity HSR were obtained from the framework of the “eight
north-south and eight west-east” main corridors identified in the Me­
dium- and Long-Term Railway Network Plan (with adjustment in 2016).
Intercity HSR refers to HSR lines planned and constructed within
neighbouring cities or city clusters. It is designed based on both the
“Code for the Design of Intercity Railways” and “Code for the Design of
High-Speed Railways.” It has shorter operating routes and operating
shifts. Moreover, the operating speed is not less than 250 km/h,
generally with only 2–5 neighbouring cities at close distances. The first
intercity HSR identified in this article began on December 16, 2007, and
the Beijing-Tianjin intercity train opened on June 8, 2008. Non-intercity
HSR refers to the design based solely on the “Code for the Design of
High-Speed Railways.” It has a larger service range, longer operating
lines, and longer distances between stations. In this study, because the
speed of the Qinhuangdao-Shenyang Passenger Line, which opened in
2003, is lower than 200 km/h, the cities along this line are not consid­
ered cities with HSR. The opening of HSR lines identified in this study
began with the opening of the Hefei-Nanjing Section of the Nanjing-
Chengdu Line on April 18, 2008.
4
Socio-Economic Planning Sciences 89 (2023) 101700
3.2.3. Mediating variables
3.2.3.1. Market access (Mk). In international trade models, a reduction
in trade costs leads to an increase in the actual income level in the
trading region and is an important aspect of factor competition in
various regions. The reduction in trade costs caused by the opening of
HSR lines can effectively reflect the influence of HSR on the welfare of
residents and reflect the responsiveness of local governments to factor
competition. This study uses market access (Mk) as a proxy variable.
Drawing lessons from the research of Donaldson and Hornbeck [36], the
market access caused by HSR is measured. That is, assuming that the
trade cost will have an impact on a city’s market size, under the premise
that the geographic distance between two cities is maintained, the
impact value is θ. The calculation formula is as follows:
∑
Mkit = κ−ij ε gdpj (3)
j
Mk represents the market access of a city, and κ represents the trans­
portation cost between city i and city j. This article sets the HSR speed to
250 km/h, and the operating cost is 0.43 yuan/km. Based on the
straight-line distance matrix between cities and the HSR fare cost, the
distance matrix and cost matrix are constructed to calculate the trans­
portation cost. ε measures a city’s trade potential and is directly pro­
portional to the city’s comparative advantage. The larger its value is, the
more trade the city can attract. Therefore, different assignments will
result in different levels of market access. Related studies involving ε did
not give an authoritative degree of assignment, but Donaldson and
Hornbeck [36] modelled that the reasonable range of ε was between
3.37 and 13.18. In existing studies, ε was often assigned a value of 3.6 or
4 [18]. Accordingly, this paper also assigns a value of 3.6 for ε and uses
the market access level calculated when ε = 4 as a robustness test. Mk is
inversely proportional to transportation costs and directly proportional
to market size. Therefore, the larger the calculated market access is, the
lower the trade transaction cost caused by HSR.
3.2.3.2. Human capital (Hci). Although some studies use the number of
high school graduates to measure the level of human capital at the
regional level, Morkutė and Koster [37] note that the human capital
externalities associated with an increase in the educational attainment
of high school students are far from those of college graduates and that
the human capital externalities are derived from the agglomeration of
highly skilled labour. Therefore, drawing on the studies of Diamond
[38] and Liang and Lu [39], the logarithm of the number of college
students plus one is used to characterize the level of urban human
capital.
3.2.4. Moderating variables (local government capacity (Ability))
Based on the study of Loayza et al. [40], administrative capacity is
X. Meng et al.
often used to measure the efficiency of plan implementation and is
therefore expressed as the ratio of the actual fiscal expenditures of a city
to its budgetary fiscal expenditures. A higher ratio suggests a higher
efficiency of plan implementation by the government and a higher
administrative capacity. The level of fiscal capacity is characterized by
the degree of revenue effort of a city. This paper constructs the following
model to calculate the degree of revenue effort:
finance∗it = τ0 + τ1 pcgdpit + τ2 fdiit + τ3 densityit + τ4 ind2it + τ5 ind3it
+ τ6 urbanit + εit
In the formula above, finance∗ represents the expected fiscal revenue,
and finance represents the actual fiscal revenue, expressed as the pro­
portion of a city’s fiscal revenue to GDP. First, the formula above is used
to calculate finance∗ , and then, revenue effort is calculated (revenue =
finance/finance∗ ). pcgdp represents the per capita GDP of a city; fdi
represents the openness of a city; density represents the population
density of a city, expressed as the logarithm of the population per square
kilometre; ind2 represents the proportion of the secondary industry,
expressed as the proportion of the urban secondary industry in GDP;
ind3 represents the proportion of the tertiary industry, expressed as the
proportion of the urban tertiary industry in GDP; and urban represents
the urbanization rate, expressed as the proportion of the urban non-
agricultural population to the total population. Specifically, the 33%
quantile of administrative capacity and 66% quantile of fiscal capacity
are used for definitional purposes. When both the administrative ca­
pacity and fiscal capacity of the local government are greater than or
equal to the 66% quantile, a city is defined as a high-capacity city, with
Ability = 1; otherwise, a city is defined as a low-capacity city, with
Ability = 0.
3.2.5. Other control variables
To more comprehensively examine the influence of HSR on urban
livelihood expenditures, in addition to controlling for the mediating
variables, we set control variables that may influence local government
fiscal expenditures: (1) the GDP growth rate (Gdpr); (2) city openness
(Fdi), which is expressed as the proportion of the total amount of direct
use of foreign capital by each city deflated by the annual end-of-period
exchange rate in the GDP of the city; (3) the urbanization level (Ur),
which is the proportion of the urban non-agricultural population to the
total population; (4) road mileage (Road), which is expressed as the
actual road mileage in a city; (5) population size (Size), which is
expressed as the logarithm of the year-end total population in a city; and
(6) the degree of urban decentralization (Fd). The following calculation
formulas are constructed:
RDit
Fd =
EDit
LRit
RDit = ∑n
LRit + ηgdp
it i=1 CRit
LEit
EDit = ∑n
LEit + ηpeople
it i=1 CEit
Where RD is revenue decentralization; LR is local general public budget
revenue; CR is central general public budget revenue; ηgdp is the pro­
portion of the GDP of city i in the national GDP; ED is expenditure
decentralization; LE is local general public budget expenditures; ηpeople is
the proportion of the population of city i to the total population of the
country; CE is central general public budget expenditure, and Fd is the
degree of urban fiscal decentralization, which is the ratio of revenue
decentralization to expenditure decentralization.
(7) Urban market potential (Poten) is calculated as follows based on
Harris [41]:
Socio-Economic Planning Sciences 89 (2023) 101700
∑Sit Sit
Potenit = + (8)
d dii
=j ij
i∕
Where Poten is the market potential of a city; S is the market size of a
city, expressed in terms of regional GDP; dij is the linear distance from
the geometric centre of city i to that of city j; and dii is the intracity
distance, which is taken as 2/3 of the radius of the urban area, with
reference to Harris [41], i.e., dii = 2(area/π )1/2 /3, with area being the
(4) land area of the administrative region of a city.
3.3. Data sources and description
The data used in this study are divided into the following three main
categories. (1) The variable data at the provincial and municipal levels
were derived from the China City Statistical Yearbook and China Pop­
ulation Statistics Yearbook for the years 2002–2018. Due to adjustments
in city administrative divisions or the absence of data for some cities,
considerable data were missing for some key continuous variables.
Therefore, the data were first supplemented using the China Statistical
Yearbook for Regional Economy from 2002 to 2018, and then, the
remaining missing data were imputed with the data from the year before
and after. (2) HSR data were mainly obtained from the China Railway
Yearbook and the China Railway Corporation website (http://news.gaot
ie.cn). (3) The vector data for the selected minimum spanning tree were
calculated from elevation data with an accuracy of 90 m; these data were
derived from the Chinese Geospatial Data Cloud (https://www.gscloud.
cn) using radar image data provided in each longitude and latitude grid.
The radar image data are primarily divided into two types of data, i.e.,
SRTM1 (30-m data) and SRTM3 (90-m data), which include the height
data for 3600 × 3600 and 1200 × 1200 sampling points, respectively. In
this study, the 90-m data points are calculated from nine 30-m data
points and then processed to obtain the minimum spanning tree data.
The specific calculation steps are as follows: first, ArcGIS software is
used to mosaic and crop the elevation data to obtain an elevation map,
extract the hydrological data, slope data, and undulation data of all cells
from the map and merge them. Second, the slope cost and undulation
cost are reassigned based on the three data sets and the three data layers:
the slope data and undulation cost data are divided into deciles, the
smallest data are divided into 1, and the largest data are divided into 10.
Finally, the unbalanced panel data of a total of 272 cities are selected as
the research samples; a statistical description of the data is provided in
Table 1.
4. Empirical results and analysis
(5) 4.1. Analysis of the baseline regression results
The results of the event study method show that the parallel trend is
(6)
valid (The result is not shown in this paper due to space limitation), this
study uses a propensity score matching (PSM) TVDID regression. Spe­
cifically, this paper uses K nearest neighbor matching method (one-to-
(7)
five matching) to match, the estimation method for the HSR dummy is
logit. After the PSM of the treatment and control groups, 722 samples
that were not within the common range of values were excluded, and the
remaining samples were used for regression. Table 2 provides the results
of the baseline regression. Column (1) shows the influence of the
opening of HSR lines on the total bias towards urban livelihood ex­
penditures. The regression coefficients are significantly positive, indi­
cating that the opening of HSR lines enhances the responsiveness of local
government fiscal expenditures, as reflected in the substantial increase
in the proportion of local government expenditures on people’s liveli­
hood. Columns (2)–(4) provide the regression results for the influence of
HSR on the government’s preference for spending on public goods such
as education, social security and employment, and medical and health
care and family planning, respectively. The coefficients are all
5
X. Meng et al. Socio-Economic Planning Sciences 89 (2023) 101700

Table 1
Descriptive statistics.
Variable Meaning Observations Mean Standard deviation Minimum Maximum

Total Bias towards livelihood expenditures 4340 1.789 1.389 0.516 21.820
Education Bias towards education expenditures 4340 1.864 1.468 0.541 24.720
Security Bias towards social security and employment expenditures 4340 1.440 1.375 0.085 14.704
Medical Bias towards medical and health care expenditure 4340 2.375 1.849 0.522 29.290
Hsr Opening of HSR lines 4340 0.263 0.441 0.000 1.000
Gdpr GDP growth rate 4340 0.019 0.046 − 0.073 0.308
Fd Decentralization 4340 0.370 0.114 0.086 0.718
Poten Market potential 4340 0.203 0.204 0.017 1.159
Fdi Openness 4340 0.021 0.023 0.000 0.123
Ur Urbanization level 4340 0.720 0.343 0.111 1.044
Hci Human capital 4340 10.207 1.534 0.000 13.898
Mk Market access 4340 − 19.497 2.037 − 26.538 − 11.441
Road Road mileage 4340 8.989 0.765 5.357 11.144
Size Population size 4340 5.848 0.674 2.923 9.315
Ability Government capacity 4340 0.343 0.475 0.000 1.000

promote bias towards expenditures on people’s livelihood? To answer

Table 2
this question, this study tests the mediating effect from the perspective
Baseline regression results.
of factor competition.
(1) (2) (3) (4) Under China’s system of fiscal decentralization and its structure of
Total Education Security Medical multilevel government, there is a competition mechanism in the relative
Hsr 0.205*** 0.269*** 0.054 0.256*** performance evaluation of local governments, that is, the “promotion
(3.74) (4.61) (1.09) (3.49) tournament” mechanism through which local governments compete for
Covariates Yes Yes Yes Yes tax revenue and expenditures to compete for a mobile tax base. The
Year/Individual Yes Yes Yes Yes existence of significant strategic interactions between local governments
fixed effects
in terms of expenditure policies has been confirmed by the literature
Observations 3618 3618 3618 3618
R-squared 0.247 0.177 0.399 0.193 [45]. Competition among local governments tends to strategically
r2_a 0.179 0.103 0.345 0.120 respond to the expenditure behaviour of other local governments, which
F 40.300*** 26.370*** 81.720*** 29.340*** in turn affects local livelihood expenditures. The spillover of public
Note: ***, **, and × indicate significance at the 1%, 5%, and 10% levels, goods and the noncooperative supply among local governments can also
respectively. The same applies below. cause the supply of public goods to deviate from the optimal level. The
competition among regions is further reflected in the competition be­
significantly positive, except for the bias towards social security and tween local governments for financial capital and human capital.
employment expenditures Hsr, which is statistically nonsignificant. The Accordingly, this study further identifies the mechanisms of the influ­
results indicate that, compared with the local governments of cities ence of HSR on the bias of local governments’ livelihood expenditures,
without HSR stations, those of cities with HSR stations effectively in­ with market access (Mk) and human capital (Hci) as proxy variables for
crease the bias towards expenditures on education and medical and the former and the latter, respectively.
health care. The direct promoting effect of the opening of HSR lines on
local governments’ livelihood expenditures is mainly reflected in the 5.1.1. Market access mechanism
substantial increase in the proportion of expenditures on education and Column (1) of Table 3 reports the results of the regression of HSR for
medical and health care. market access, and the coefficient estimate of Hsr for market access (Mk)
is significant; columns (2)–(5) show the regression results when both Mk
and Hsr are included. Although the regression coefficients of the former
4.2. Robustness tests
are small, the coefficients of Mk and Hsr are both significant except those
for regression (4). Therefore, the Sobel test is not required, indicating
This paper primarily conducted robustness tests from four aspects:
that the influence of HSR on the total and structural bias towards live­
first, testing the gradient effects of the opening of HSR lines grade in
lihood expenditure is closely related to market access. Based on the
different cities on urban livelihood expenditures; second, testing the
calculation equation of Mk, the new market access is calculated by
gradient effects of different HSR lines coverage numbers on urban
replacing ε with 4, and the results show that the mediating mechanism
livelihood expenditures; third, addressing endogeneity issues [42,43];
still holds after incorporation into the model. Market access due to HSR
and finally, conducting a placebo test. Limited to length, the relevant
has a positive effect on local fiscal responsiveness. Market access is a
results are placed in the appendix.
measure of the extent to which the goods, labour services, and capital of
a country or region participate in market competition. With the rapid
5. Further analysis
development of trade liberalization and information technology, it has
become easier to acquire basic information in the process of trade ex­
5.1. Test of the mediating effects
change between two regions. The truly decisive factor is the familiarity
with each other’s markets, supply and demand networks, and informa­
To enhance the attraction of mobile resource factors, local govern­
tion on inbound goods, and such “soft information” is accessed from the
ments can compete by reducing the cost of resource use or by providing
oral communication between entrepreneurs and relies on face-to-face
different types and scales of public goods [25]. The rapid development
dissemination [46]. HSR provides a good medium for this information
of HSR has effectively reduced the cost of domestic trade and promoted
access. The opening of HSR lines improves the accessibility of cities,
the integration of domestic markets [44], accelerated the mobility and
reduces fixed trade costs, and enhances the economic, information, la­
spatial reallocation of factors such as financial capital and human cap­
bour, and technology flows between cities [20], These positive changes
ital, and resulted in a significant “multiplier effect.” Will the opening of
enable enterprises to obtain lower-priced or higher-quality factors in
HSR lines intensify the competition among governments and thus

6
X. Meng et al. Socio-Economic Planning Sciences 89 (2023) 101700

Table 3
Test of the influence mechanism of market access.
(1) (2) (3) (4) (5)

Mk Total Education Security Medical

Hsr 0.056** (2.15) 0.212*** (3.85) 0.276*** (4.73) 0.058 (1.17) 0.262*** (3.57)
Mk 0.111*** (3.01) 0.153*** (3.91) 0.014 (0.43) 0.180*** (3.65)
Z value / / / /
Does the mediating effect hold? Yes Yes No Yes
Covariates Yes Yes Yes Yes Yes
Year/Individual fixed effects Yes Yes Yes Yes Yes
Observations 3618 3618 3618 3618 3618
R-squared 0.802 0.243 0.172 0.398 0.191
r2_a 0.784 0.176 0.098 0.344 0.118
F 537.700*** 41.080*** 26.480*** 84.440*** 30.110***

areas with better accessibility, which influences the location choice of
enterprises and the formation of industrial agglomeration and promotes
competition in interregional factor and product markets. Market size
expansion stimulates new growth points of service consumption de­
mand, increases the sales radius of enterprises, and expands the distance
of goods accessibility. To attract an inflow of the mobile tax base, local
governments enhance their competitive advantage through the expen­
diture competition strategy and thereby increase the proportion of
livelihood expenditures.
5.1.2. Human capital mechanism
5.1.2.1. Total human capital. Table 4 reports the results of the regres­
sion with human capital as a mediating variable. The coefficient esti­
mates of Hsr for Hci are significant. In regressions (2), (3), and (5), the
regression coefficients of Hci and Hsr for both the total and structural
bias of livelihood expenditures have explanatory power and are signif­
icant at the 1% level; thus, the Sobel test is not required. Therefore,
human capital is an important channel through which the opening of
HSR lines influences the bias of governments’ livelihood expenditures.
That is, the opening of HSR lines accelerates the flow of human capital
between cities, which in turn enhances the incentives of local govern­
ments to supply livelihood public goods. The opening of HSR lines
shortens the accessibility distance of human capital in search of jobs and
reduces the cost of mobility, thereby improving the efficiency with
which human capital is matched with jobs and reducing the structural
unemployment caused by the mismatch between labour skills and
market demand in the unemployment process as well as the frictional
unemployment caused by the failure to connect workers with market
demand, a lack of mobility, and information mismatches. Human capital
mobility helps cities achieve an initial accumulation of human capital. In
the development process, due to the externalities of human capital [47],
the flow of highly educated talent to areas with good accessibility ac­
celerates, forming a virtuous cycle of “inflow-optimization-re-inflow,”
further amplifying the effect of the opening of HSR lines on human
capital.
5.1.2.2. Human capital structure. To further explain the influence
mechanism of the difference in human capital structure in the promotion
of livelihood expenditures by HSR, this study introduces four new in­
dicators, namely, Edu1 to Edu4, which represent the number of em­
ployees with an elementary school education or below, a middle school
education, a high school education, and a college education or above,
respectively, in a city. The number of employees with different educa­
tional levels in each city is calculated based on data on the educational
level of employees in each province to indicate the distribution of em­
ployees with different educational levels. Table 5 provides the regres­
sion results for the influence mechanism of the human capital structure.
Hsr is statistically nonsignificant for human capital with an elementary
school education or below, and the Z value for the Sobel test is less than
0.97. However, Hsr has significant explanatory power for human capital
with the other three educational levels and, in particular, promotes a
significant increase in the number of employees with a college education
or above. After adding the indicators for both the opening of HSR lines
and the human capital structure, the regression results show that there is
no mediating effect on the number of employees with an elementary
school education or below and that there is a significant mediating effect
on each of the other three human capital indicators. The results indicate
that after the opening of HSR lines, cities gain competitive advantages
by increasing livelihood expenditures to promote the agglomeration of
human capital, especially that of highly skilled human capital with a
college education or above. The reason is that the agglomeration of
highly skilled human capital in a city is closely related not only to the
industrial structure, job opportunities, and income level of the city but
also to the quality and level of basic public services such as education
and medical and health care in the city.
5.2. Test of the moderating mechanisms of local government capacity
Based on the variable Ability, this study investigates the heteroge­
neous influence of the opening of HSR lines on the bias towards liveli­
hood expenditures in cities with different government capacities. The
relevant results are reported in Table 6. When the multiplicative

Table 4
Test of the influence mechanism of human capital.
(1) (2) (3) (4) (5)

Hci Total Education Security Medical

Hsr 0.057* (1.83) 0.211*** (3.84) 0.276*** (4.73) 0.054 (1.10) 0.266*** (3.61)
Hci 0.126*** (4.09) 0.153*** (4.66) 0.074*** (2.67) 0.122*** (2.97)
Z value / / / /
Does the mediating effect hold? Yes Yes No Yes
Covariates Yes Yes Yes Yes Yes
Year/Individual fixed effects Yes Yes Yes Yes Yes
Observations 3618 3618 3618 3618 3618
R-squared 0.348 0.245 0.173 0.399 0.190
r2_a 0.290 0.178 0.099 0.346 0.117
F 70.880*** 41.470*** 26.780*** 84.880*** 29.900***

7
X. Meng et al. Socio-Economic Planning Sciences 89 (2023) 101700

Table 5 financial capital and human capital, it is difficult for local governments
Test of the influence mechanism of the human capital structure. to allocate expenditures on goods for people’s livelihood that match the
Step 1 (1) (2) (3) (4) demand, thus leading to a decrease in government responsiveness via
livelihood expenditures induced by HSR. For governments with a strong
Edu1 Edu2 Edu3 Edu4
capacity, administrative and fiscal capacities are related to the efficiency
Hsr − 0.008 0.021** 0.048*** 0.068*** of these governments in acquiring resources and using them effectively,
(− 1.48) (2.51) (5.30) (3.03)
Covariates Yes Yes Yes Yes
which is reflected in the strong social governance capacity of the cities
Year/ Yes Yes Yes Yes and can amplify the incentive effect of HSR on the supply of public goods
Individual by local governments.
fixed
effects
6. Conclusions
Observations 3618 3618 3618 3618
R-squared 0.998 0.996 0.995 0.970
r2_a 0.998 0.995 0.994 0.967 Based on a quasi-natural experiment involving the opening of HSR
F 74469.740*** 29686.620*** 24937.660*** 4317.450*** lines, this study tests the influence of the opening of HSR lines on the
Step 2 Total Total Total Total bias of local governments’ livelihood expenditures and the corre­
Hsr 0.216*** 0.213*** 0.197*** 0.201***
(3.93) (3.87) (3.57) (3.66)
sponding mechanisms in multiple dimensions using a TVDID model as
Edu1 − 0.196 well as 2002–2018 Chinese city data and geographic information data.
(− 1.09) The main conclusions are as follows. First, the opening of HSR lines
Edu2 0.233** effectively enhances local governments’ bias towards livelihood ex­
(2.07)
penditures, and the responsiveness of local governments increases with
Edu3 0.441***
(4.22) the increase in the number of HSR lines in cities. This “HSR effect” is
Edu4 0.254*** reflected in both the total amount and structure of livelihood expendi­
(5.98) tures. Second, the opening of HSR lines accelerates the spatial reallo­
Z value Z = 0.17 Z = 1.36 Z = 1.36 Z = 1.78 cation of resource factors, which has a significant amplification effect on
Does the No Yes Yes Yes
mediating
the competition among local governments, accelerating the agglomer­
effect ation of capital and factors in large cities through market access and
hold? human capital and providing an important transmission mechanism for
Covariates Yes Yes Yes Yes local governments’ livelihood expenditures. Third, from the perspective
Year/ Yes Yes Yes Yes
of social governance capacity, the opening of HSR lines has a more
Individual
fixed significant incentive effect on local governments’ livelihood expendi­
effects tures in cities with stronger administrative and fiscal capacities.
Observations 3618 3618 3618 3618 Therefore, local governments should pay full attention to the spillover
R-squared 0.242 0.242 0.245 0.249 effect of HSR lines, shift from comparative advantage to competitive
r2_a 0.174 0.175 0.178 0.182
F 40.680*** 40.830*** 41.520*** 42.430***
advantage, promote the shift of basic public services from a regional
territorial supply to a regionally linked and coordinated supply, opti­
mize the allocation pattern of basic public services among cities, and
enhance their governance capacity and levels.
Table 6
Test of the moderating mechanism of local government capacity.
Funding
(1) (2) (3) (4)

Total Education Security Medical The financial support from the Major Program of National Fund of
Hsr 0.142** 0.184*** 0.027 (0.50) 0.183** Philosophy and Social Science of China(No. 18ZDA040).
(2.34) (2.86) (2.26)
Ability 0.140** 0.123* 0.138*** 0.216*** Credit author statement
(2.35) (1.94) (2.59) (2.71)
Hsr_Ability 0.199** 0.271*** 0.068 (0.94) 0.235**
(2.48) (3.18) (2.19)
Xia Meng: Methodology, Software, Writing - original draft, Funding
Covariates Yes Yes Yes Yes acquisition. Tao Ding: Software, Supervision, Writing - review & editing.
Year/Individual Yes Yes Yes Yes Haisen Wang: Conceptualization, Data curation, Supervision, Writing -
fixed effects review & editing.
Observations 3618 3618 3618 3618
R-squared 0.251 0.181 0.402 0.197
r2_a 0.183 0.107 0.348 0.124 Declaration of competing interest
F 39.680*** 26.190*** 79.550*** 28.990***
None.

interaction term of local government capacity and the opening of HSR Data availability
lines is added, the estimate of its coefficient is significantly positive at
the 1% level (except for social security and employment expenditures), Data will be made available on request.
indicating that the higher the administrative and fiscal capacities are,
the more pronounced the total bias towards increases in livelihood ex­ Acknowledgements
penditures after the opening of HSR lines. The contribution of the
opening of HSR lines to the total and structural expenditures on goods We would like to thank the editor and the anonymous referees for
for people’s livelihood (except social security and employment expen­ their highly constructive suggestions.
ditures) gradually decreases with the decrease in local government ca­
pacity, a result that is consistent with that of the heterogeneity test by Appendix A. Supplementary data
city size discussed in the previous section. In areas with weak admin­
istrative and fiscal capacities, even if the opening of HSR lines attracts Supplementary data to this article can be found online at https://doi.

8
X. Meng et al.
org/10.1016/j.seps.2023.101700.
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Xia Meng, female, PhD. School of Economics and Management, China University of
Geosciences. Main research directions: public economy.
Tao Ding, male, Master. School of Economics and Management, China University of
Geosciences. Main research directions: regional economy and industrial economy.
Haisen Wang, male, PhD. Economics and Management School, Wuhan University. Main
research directions: regional economy and industrial economy.