Is fiscal policy stationary in China? A regional study by local government
AbstractIn this study, we apply a stationarity test with a flexible Fourier function proposed by Enders and Lee (2012) to test the stationarity of the deficit–GDP ratio in China. We find that our approximation has a higher power to detect U-shaped breaks and to smooth breaks than the linear method if the true data-generating process of the deficit–GDP ratio convergence is, in fact, a stationary non-linear process. The results show that the stationarity for fiscal policy varies across different regions and that the deficit–GDP ratio of half of the regions is stationary. The results related to the budget structural balance and the fiscal deficit indicate no expansion in the Eastern and Central regions. We find that China's provinces in these two regions meet the stability theory of fiscal policy in the current stage of development. The deficit–GDP ratio is not stationary in the Western and Northeastern regions. These results indicate that the fiscal deficits in these regions are expanding and cannot be controlled by automatic market adjustment, and the government should therefore avoid deficit expansion in favor of a balanced budget policy.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 37 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Fiscal policy; Flexible Fourier test; Structural change;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
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