Is fiscal policy stationary in China? A regional study by local government
In 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jyh-lin, Wu & Fountas, Stilianos & Show-lin, Chen, 1996.
"Testing for the sustainability of the current account deficit in two industrial countries,"
Elsevier, vol. 52(2), pages 193-198, August.
- Jyh-lin Wu & Stilianos Fountas & Show-lin Chen, 1996. "Testing for the Sustainability of the Current Account Deficit in Two Industrial Countries," Working Papers 11, National University of Ireland Galway, Department of Economics, revised 1996.
- Walter Enders & Junsoo Lee, 2012. "A Unit Root Test Using a Fourier Series to Approximate Smooth Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(4), pages 574-599, 08.
- Perron, P. & Bai, J., 1995.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Cahiers de recherche
9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
- Christophe Ehrhart & Matthieu Llorca, 2008.
"The sustainability of fiscal policy: evidence from a panel of six South-Mediterranean countries,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 15(10), pages 797-803.
- Christophe Ehrhart & Matthieu Llorca, 2008. "The sustainability of fiscal policy: evidence from a panel of six South-Mediterranean countries," Post-Print halshs-00338063, HAL.
- Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series 1446, CESifo Group Munich.
- Pascalau, Razvan, 2008.
"Unit Roots Tests with Smooth Breaks: An Application to the Nelson-Plosser Data Set,"
7220, University Library of Munich, Germany.
- Razvan Pascalau, 2010. "Unit root tests with smooth breaks: an application to the Nelson-Plosser data set," Applied Economics Letters, Taylor & Francis Journals, vol. 17(6), pages 565-570.
- Luis CatÃ£o & Marco Terrones, 2003.
"Fiscal Deficits and Inflation,"
IMF Working Papers
03/65, International Monetary Fund.
- Serena Ng & Pierre Perron, 1997.
"Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Boston College Working Papers in Economics
369, Boston College Department of Economics, revised 01 Sep 2000.
- Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
- Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
- Perron, P, 1988.
"The Great Crash, The Oil Price Shock And The Unit Root Hypothesis,"
338, Princeton, Department of Economics - Econometric Research Program.
- Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
- Bravo, Ana Bela Santos & Silvestre, Antonio Luis, 2002. "Intertemporal sustainability of fiscal policies: some tests for European countries," European Journal of Political Economy, Elsevier, vol. 18(3), pages 517-528, September.
- Dimitris K. Christopoulos & Miguel A. León-Ledesma, 2010. "Revisiting The Real Wages-Unemployment Relationship. New Results From Non-Linear Models," Bulletin of Economic Research, Wiley Blackwell, vol. 62(1), pages 79-96, 01.
- Amsler, Christine & Lee, Junsoo, 1995. "An LM Test for a Unit Root in the Presence of a Structural Change," Econometric Theory, Cambridge University Press, vol. 11(02), pages 359-368, February.
- Raghbendra Jha & Anurag Sharma, 2004. "Structural Breaks, Unit Roots, and Cointegration: A Further Test of the Sustainability of the Indian Fiscal Deficit," Public Finance Review, SAGE Publishing, vol. 32(2), pages 196-219, March.
- Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
- Domenech, Rafael & Taguas, David & Varela, Juan, 2000. "The effects of budget deficit on national saving in the OECD," Economics Letters, Elsevier, vol. 69(3), pages 377-383, December.
- Hiroshi Ono, 2008. "Searching for nonlinear effects and fiscal sustainability in G-7 countries," Applied Economics Letters, Taylor & Francis Journals, vol. 15(6), pages 457-460.
- Ralf Becker & Walter Enders & Junsoo Lee, 2006. "A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(3), pages 381-409, 05.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:37:y:2014:i:c:p:492-499. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.