When the Barrel Hits the Budget: Oil Prices and Fiscal Consolidation in China

China faces the challenge of maintaining fiscal sustainability amid volatile oil prices (OPs). Fluctuating prices affect revenues and expenditures, complicating consolidation. Understanding how revenue- and expenditure-based policies respond to such shocks is key, yet few studies examine their interaction over time with nonlinear, time-varying effects. This study analyzes the relationship between OP shocks, fiscal consolidation, and fiscal policy composition in China from 1990 to 2025. Using time-varying parameter local projection (TVP-LP), time-varying parameter vector autoregression (TVP-VAR), and structural vector autoregression (SVAR) models, it captures the time-varying and nonlinear responses of the cyclically adjusted primary balance (CAPB) to domestic fiscal shocks and external OP changes. Results show that consolidation is highly sensitive to OP volatility, debt levels, and the choice of revenue- or expenditure-based measures. Expenditure-based consolidation yields lower output costs and more sustainable debt paths, while revenue-based measures improve fiscal balances but can worsen short-term contractionary effects. Policymakers need to enhance expenditure efficiency, mobilize revenue strategically, build fiscal buffers, and strengthen medium-term debt management. The study adds to the literature by demonstrating the relevance of time-varying fiscal dynamics and the impact of institutional and external influences. Findings guide emerging economies facing commodity price shocks and rising debt, stressing the importance of adaptive and well-sequenced consolidation strategies. JEL Classification E62, H60, Q43, C32, F41