Tax-Spend, Spend-Tax, or Fiscal Synchronization: A Panel Analysis of the Chinese Provincial Real Data
In this paper we tested whether the hypothesis of tax-spend, spend-tax, or fiscal synchronization applies to the 31 Chinese provinces using cross-sectional and time series data covering 1999 to 2005. The interaction between government revenues and government expenditures is tested with the newly developed panel unit root tests and heterogeneous panel cointegration tests. The results show that both revenues and expenditures are non-stationary but have a significant long-run relationship. The results based on multivariate panel error-correction models show that there is no significant causality between revenues and expenditures in the short run. However, in the long-run, a bi-directional causality exists between revenues and expenditures, thus supporting the fiscal synchronization hypothesis for 31 Chinese provinces over this sample period.
Volume (Year): 5 (2009)
Issue (Month): 2 (July)
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