Government Size and Macroeconomic Stability: Sub-National Evidence from China
AbstractBoth theoretical predictions of Keynesian view and a large body of empirical studies on developed countries suggest that business cycle fluctuations can be partially smoothed by counter-cyclical fiscal policies. Our paper extends this strand of literature by considering the nexus between output fluctuations and government size in the context of Chinese fiscal federalism. Using a sample of 29 Chinese provinces for the period of 1994-2007, we fail to provide consistent evidence for the stabilizing effect of fiscal policies. In particular, we find that under the tax assignment system (fen shui zhi), neither the central government’s fiscal transfers nor the provincial budgetary and extra-budgetary revenues help reduce economic volatility. Such results are shown to be robust across different model specifications, volatility measures and estimation techniques.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28226.
Date of creation: 2010
Date of revision:
business cycles; government size; fiscal federalism; China;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- H5 - Public Economics - - National Government Expenditures and Related Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-DEV-2011-01-30 (Development)
- NEP-MAC-2011-01-30 (Macroeconomics)
- NEP-PBE-2011-01-30 (Public Economics)
- NEP-TRA-2011-01-30 (Transition Economics)
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