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How Large Will Be the Effect of China's Fiscal-Stimulus Package on Output and Employment?

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  • Dong He

    (Research Department, Hong Kong Monetary Authority)

  • Zhiwei Zhang
  • Wenlang

    (Research Department, Hong Kong Monetary Authority)

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Abstract

This paper studies the effects of the fiscal-stimulus package in Mainland China on its output and employment. Using the input-output table as the analytical framework, we argue that the aggregate effect on output and employment of a given amount of fiscal spending depends on the distribution of such spending across different economic sectors. We estimate that the announced fiscal spending of RMB2 trillion yuan in 2009 could lead to a direct increase in output of RMB1.7 trillion yuan, implying a fiscal multiplier of around 0.84 in the short-run, and could potentially generate 18 million to 20 million new jobs in non-farming sectors. We further argue that the size of the fiscal multiplier also depends on the cyclical conditions of the economy and the policy environment, which we simulate using a dynamic structural model. Model results show that the fiscal multiplier in the medium run is around 1.1 as government fiscal spending leads to higher household consumption and corporate investment, which will take time to fully materialise.

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Bibliographic Info

Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0905.

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Length: 23 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:hkg:wpaper:0905

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Keywords: Fiscal policy; Input-output table; Multiplier; Employment coefficient;

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Cited by:
  1. Jha, Veena, 2009. "The effects of fiscal stimulus packages on employment," ILO Working Papers 433897, International Labour Organization.
  2. Afsin Sahin & Aysit Tansel & M. Hakan Berument, 2013. "Output-Employment Relationship across Sectors: A Long- versus Short-Run Perspective," Koç University-TUSIAD Economic Research Forum Working Papers 1311, Koc University-TUSIAD Economic Research Forum.
  3. Diao, Xinshen & Zhang, Yumei & Chen, Kevin Z., 2012. "The global recession and China's stimulus package: A general equilibrium assessment of country level impacts," China Economic Review, Elsevier, vol. 23(1), pages 1-17.
  4. Yingxin Shi & Mototsugu Fukushige, 2013. "Long-Run Fiscal Multiplier for Autonomous Prefectures in China," Discussion Papers in Economics and Business 13-10, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  5. Zhang, Zhiwei & Zhang, Wenlang, 2011. "The road to recovery: Fiscal stimulus, financial sector rehabilitation, and potential risks ahead," Journal of Asian Economics, Elsevier, vol. 22(4), pages 311-321, August.
  6. Christian Dreger & Yanqun Zhang, 2013. "Does the economic integration of China affect growth and inflation in industrial countries?," FIW Working Paper series 116, FIW.

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